A simple explanation of the relative performance evaluation puzzle

Review of Economic Dynamics

Volumn 9, Issue 3, 2006, Pages 525-540

  Celentani, Marco ^a   Loveira, Rosa ^b  

^a UNIVERSIDAD CARLOS III DE MADRID   (Spain)

^b UNIVERSIDAD COMPLUTENSE DE MADRID   (Spain)

Author keywords

Executive compensation; Optimal contracts; Relative performance evaluation

Indexed keywords

EID: 33745483927     PISSN: 10942025     EISSN: None     Source Type: Journal    
DOI: 10.1016/j.red.2006.04.001     Document Type: Article

References (40)

1. Abbring J.H., Chiappori P., Heckman J.J., and Pinquet J. Adverse selection and moral hazard in insurance: Can dynamic data help to distinguish?. Journal of the European Economic Association 1 (2003) 512-521
2. Abowd J.M., and Kaplan D. Executive compensation: Six questions that need answering. Journal of Economic Perspectives 13 (1999) 145-168
3. Acharya, V., Bisin, A., 2005. Managerial hedging, equity ownership and firm value. Mimeo. New York University
4. Aggarwal R.K., and Samwick A.A. Executive compensation, strategic competition, and relative performance evaluation: Theory and evidence. Journal of Finance, LIV (1999) 1999-2043
5. Aggarwal R.K., and Samwick A.A. The other side of the tradeoff: The impact of risk on executive compensation. Journal of Political Economy 107 (1999) 65-105
6. Antle R., and Smith A. An empirical investigation of the relative performance evaluation of corporate executives. Journal of Accounting Research 24 (1986) 1-39
7. Bannister J.W., and Newman H.A. Analysis of corporate disclosures on relative performance evaluation. Accounting Horizons 17 3 (2003) 235-246
8. Barro J.R., and Barro R.J. Pay, performance and turnover of bank CEOs. Journal of Labor Economics 8 (1990) 448-481
9. Bebchuk L.A. How much does the boss make?. Wall Street Journal 18 January (2006) A10
10. Bertrand M., and Mullainathan S. Are CEOs rewarded for luck? The ones without principal are. Quarterly Journal of Economics 116 (2001) 901-932
11. Besley T., and Case A. Incumbent behavior: Vote seeking, tax setting and yardstick competition. American Economic Review 85 1 (1995) 25-45
12. Bisin, A., Gottardi, P., Rampini, A., 2006. Managerial hedging and portfolio monitoring. Mimeo
13. Celentani, M., Loveira, R., 2004. What form of relative performance evaluation? Working paper 744. Department of Economics, Universitat Pompeu Fabra
14. Chance D.M., Kumar R., and Todd R.B. The 'repricing' of executive stock options. Journal of Financial Economics 57 (2000) 129-154
15. Chiappori P., Macho I., Rey P., and Salanié B. Repeated moral hazard: The role of memory and commitment. European Economic Review 38 (1994) 1527-1553
16. Core, J.E., Guay, W.R., 2003. When efficient contracts require risk-averse executives to hold equity: Implications for option valuation, for relative performance evaluation, and for the corporate performance debate. Research paper 03-32. University of Pennsylvania, Institute for Law & Economics
17. de Swaan J.C., and Harper N.W.C. Getting what you pay for with stock options. The McKinsey Quarterly 1 (2003) 2-5 Closing Views
18. Dobbs R.F.C., and Koller T.M. Stock options aren't enough. The McKinsey Quarterly 3 (2000) 190-192
19. The Economist, 2002. Is greed good? In: Capitalism and its troubles. A survey of international finance. May 16, 2002, pp. 23-26
20. The Financial Economist Roundtable, 2003. The controversy over executive compensation. Mimeo. Available from http://www.luc.edu/orgs/finroundtable/
21. Garvey G.T., and Milbourn T.T. Incentive compensation when executives can hedge the market: Evidence of relative performance evaluation in the cross section. Journal of Finance 58 4 (2003) 1557-1582
22. Garvey, G.T., Milbourn, T.T., 2006. Asymmetric benchmarking in compensation: Executives are rewarded for good luck but not penalized for bad, Journal of Financial Economics, in press
23. Gibbons M., and Murphy K.J. Relative performance evaluation for chief executive officers. Industrial and Labour Relations Review 43 (1990) 30-52
24. Hall B., and Liebman J. Are CEOs really paid like bureaucrats?. Quarterly Journal of Economics 113 (1998) 653-691
25. Himmelberg, C.P., Hubbard, R.G., 2000. Incentive pay and the market for CEOs: An analysis of pay-for-performance sensitivity. Mimeo. Columbia University
26. Holmström B., and Ricart i Costa J. Managerial incentives and capital management. Quarterly Journal of Economics 101 (1986) 835-860
27. Janakiraman S.N., Lambert R.A., and Larcker D.F. An empirical investigation of the relative performance evaluation hypothesis. Journal of Accounting Research 30 (1992) 53-78
28. Joh S.W. Strategic managerial incentive compensation in Japan: Relative performance evaluation and product market collusion. Review of Economics and Statistics 81 (1999) 303-313
29. Murphy K.J. Executive compensation. In: Ashenfelter O., and Card D. (Eds). Handbook of Labor Economics vol. 3 (1999), North-Holland, Amsterdam
30. Oyer P. Why do firms use incentives that have no incentive effects?. Journal of Finance 59 (2004) 1619-1649
31. Prendergast C. The provision of incentives in firms. Journal of Economic Literature 37 (1999) 7-63
32. Prendergast C. The tenuous trade-off between risk and incentives. Journal of Political Economy 110 (2002) 1071-1102
33. Rappaport A. New thinking on how to link executive pay with performance. Harvard Business Review, March-April (1999) 91-101
34. Ricart i Costa J. On managerial contracting with asymmetric information. European Economic Review 33 9 (1989) 1805-1829
35. Rosen S. Contracts and the market for executives. In: Werin L., and Wijkander H. (Eds). Contract Economics (1992), Blackwell, Oxford
36. Rothschild M., and Stiglitz J.E. Equilibrium in competitive insurance markets: An essay on the economics of perfect information. Quarterly Journal of Economics 90 4 (September 1976) 629-649
37. Salas Fumás V. Relative performance evaluation of management. International Journal of Industrial Organization 10 (1992) 473-489
38. Shleifer A. A theory of yardstick competition. RAND Journal of Economics 16 3 (1985) 319-327
39. Sobel J. A re-examination of yardstick competition. Journal of Economics and Management Strategy 8 (1999) 33-60
40. Wilson C. A model of insurance markets with incomplete information. Journal of Economic Theory 16 (1977) 167-207