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Relative performance evaluation and competitive aggressiveness

Feichter, Christoph, Moers, Frank and Timmermans, Oscar (2022) Relative performance evaluation and competitive aggressiveness. Journal of Accounting Research, 60 (5). 1859 - 1913. ISSN 0021-8456

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Identification Number: 10.1111/1475-679X.12431

Abstract

We examine the relation between incentive plans based on relative performance and competitive aggressiveness. Using data on executive incentive-compensation contracts in large U.S. firms, we find a positive association between competitive aggressiveness and peer group overlap—that is, the extent to which two firms select each other as peers in these incentive plans. Our findings indicate that managers of such firms take more frequent as well as more complex competitive actions, relative to managers evaluated on relative performance without peer group overlap. Moreover, we show that these competitive tactics are more pronounced when managers compete against: (1) peers with similar grant sizes, (2) peers on similar performance metrics, and (3) peers in the same industry. Collectively, our findings provide evidence on how widely used incentive-compensation practices relate to strategic firm decisions.

Item Type: Article
Official URL: https://onlinelibrary.wiley.com/journal/1475679x
Additional Information: © 2022 The Authors
Divisions: Accounting
Subjects: H Social Sciences > HF Commerce > HF5601 Accounting
JEL classification: J - Labor and Demographic Economics > J3 - Wages, Compensation, and Labor Costs > J33 - Compensation Packages; Payment Methods
J - Labor and Demographic Economics > J4 - Particular Labor Markets > J41 - Contracts: Specific Human Capital, Matching Models, Efficiency Wage Models, and Internal Labor Markets
L - Industrial Organization > L1 - Market Structure, Firm Strategy, and Market Performance > L10 - General
M - Business Administration and Business Economics; Marketing; Accounting > M4 - Accounting and Auditing > M40 - General
Date Deposited: 22 Jul 2022 11:42
Last Modified: 18 Nov 2022 15:57
URI: http://eprints.lse.ac.uk/id/eprint/115630

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