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http://ssrn.com/abstract=1572085
 
 

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Performance for Pay? The Relation Between CEO Incentive Compensation and Future Stock Price Performance


Michael J. Cooper


University of Utah - David Eccles School of Business

Huseyin Gulen


Purdue University - Krannert School of Management

P. Raghavendra Rau


University of Cambridge

October 1, 2014


Abstract:     
We find evidence that Chief Executive Officer (CEO) pay is negatively related to future stock returns for periods up to three years after sorting on pay. For example, firms that pay their CEOs in the top ten percent of excess pay earn negative abnormal returns over the next three years of approximately -8%. The effect is stronger for CEOs who receive higher incentive pay relative to their peers and stronger for CEOs with greater tenure. Our results appear to be driven by high-pay related CEO overconfidence that leads to shareholder wealth losses from activities such as overinvestment and value-destroying mergers and acquisitions.

Number of Pages in PDF File: 54

Keywords: Executive compensation, Pay-performance relationship

JEL Classification: G34, J33

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Date posted: March 19, 2010 ; Last revised: October 3, 2014

Suggested Citation

Cooper, Michael J. and Gulen, Huseyin and Rau, P. Raghavendra, Performance for Pay? The Relation Between CEO Incentive Compensation and Future Stock Price Performance (October 1, 2014). Available at SSRN: http://ssrn.com/abstract=1572085 or http://dx.doi.org/10.2139/ssrn.1572085

Contact Information

Michael J. Cooper
University of Utah - David Eccles School of Business ( email )
1645 E Campus Center Dr
Salt Lake City, UT 84112-9303
United States
Huseyin Gulen
Purdue University - Krannert School of Management ( email )
1310 Krannert Building
West Lafayette, IN 47907-1310
United States
P. Raghavendra Rau (Contact Author)
University of Cambridge ( email )
Cambridge Judge Business School
Trumpington Street
Cambridge, Cambridgeshire CB21AG
United Kingdom
3103626793 (Phone)
HOME PAGE: http://www.raghurau.com/
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