Managerial Attributes, Incentives, and Performance
Jeffrey L Coles, Zhichuan (Frank) Li, Managerial Attributes, Incentives, and Performance, The Review of Corporate Finance Studies, Volume 9, Issue 2, August 2020, Pages 256–301,
66 Pages Posted: 22 Sep 2010 Last revised: 9 Dec 2020
Date Written: September 24, 2019
Abstract
We examine the relative importance of observed and unobserved firm- and manager-specific heterogeneities in determining executive compensation incentives and firm policy, risk, and performance. First, we decompose executive incentives into time-variant and time-invariant firm and manager components. Manager fixed effects supply 73% (60%) of explained variation in delta (vega). Second, controlling for manager fixed effects alters parameter estimates and corresponding inference on observed firm and manager characteristics. Third, larger CEO delta (vega) fixed effects predict better firm performance (riskier corporate policies and higher firm risk). These results suggest that the delta (vega) fixed effect captures managerial ability (risk aversion).
Keywords: Executive compensation, Managerial incentives, Managerial ability, Human capital, Risk aversion, Investment policy, Financing policy, Firm fixed effects, Manager fixed effects, Delta, Vega
JEL Classification: G3, G32, G34, J24, J31, J33, C23
Suggested Citation: Suggested Citation
Do you have negative results from your research you’d like to share?
Recommended Papers
-
Are CEOS Really Paid Like Bureaucrats?
By Brian J. Hall and Jeffrey B. Liebman
-
Are CEOS Really Paid Like Bureaucrats?
By Brian J. Hall and Jeffrey B. Liebman
-
The Other Side of the Tradeoff: The Impact of Risk on Executive Compensation
-
Good Timing: CEO Stock Option Awards and Company News Announcements
-
Good Timing: CEO Stock Option Awards and Company News Announcements
-
The Use of Equity Grants to Manage Optimal Equity Incentive Levels
By John E. Core and Wayne R. Guay
-
The Other Side of the Tradeoff: the Impact of Risk on Executive Compensation
-
Stock Options for Undiversified Executives
By Brian J. Hall and Kevin J. Murphy