Abstract

http://ssrn.com/abstract=1910846
 
 

Citations (3)



 
 

Footnotes (13)



 


 



Peer Group Composition, Peer Performance Aggregation, and Detecting Relative Performance Evaluation


Dirk E. Black


Dartmouth College - Tuck School of Business

Shane S. Dikolli


Duke University - Fuqua School of Business

Christian Hofmann


Ludwig-Maximilians-Universität München - Faculty of Business Administration (Munich School of Management)

February 16, 2011

AAA 2012 Management Accounting Section (MAS) Meeting Paper

Abstract:     
We find that 17.32% of S&P 500 firms explicitly disclose the use of relative performance evaluation (RPE) in their first proxy statement filed on or after December 15, 2006, the effective date of an SEC rule mandating expanded compensation disclosures. We provide evidence on the completeness of these explicit disclosures by conducting implicit tests for RPE to detect if RPE-disclosing firms indeed filter out systematic risk from CEO compensation and RPE-non-disclosers do not. Recent work suggests that inferences from implicit tests for RPE may be sensitive to empirical choices about (1) peer group composition and (2) peer performance aggregation. We incorporate variations in these empirical design choices into our implicit tests for RPE. For the sub-sample of RPE disclosers, we find consistent implicit evidence of RPE as long as the peer group is composed either of firms in the same industry/size quartile or of firms named as peers in the explicit RPE disclosures. However, we also detect implicit RPE in RPE-non-disclosers, using, for example, industry/size peer groups and weighting each peer’s performance by each peer’s correlation with systematic risk relative to each peer’s idiosyncratic risk. These results imply that relying on explicit disclosures of RPE may understate the prevalence of RPE in practice and that implicit tests for RPE remain important in detecting RPE. Moreover, researchers may need to (1) control for both industry and size when forming peer groups to implicitly test for RPE and (2) adopt more sophisticated peer performance aggregation methods if a researcher’s objective is to control for the systematic determinants of firm performance.

Number of Pages in PDF File: 36

Keywords: relative performance evaluation, peer performance, aggregation, peer composition

JEL Classification: J33, J41

working papers series





Download This Paper

Date posted: August 17, 2011  

Suggested Citation

Black, Dirk E. and Dikolli, Shane S. and Hofmann, Christian, Peer Group Composition, Peer Performance Aggregation, and Detecting Relative Performance Evaluation (February 16, 2011). AAA 2012 Management Accounting Section (MAS) Meeting Paper. Available at SSRN: http://ssrn.com/abstract=1910846 or http://dx.doi.org/10.2139/ssrn.1910846

Contact Information

Dirk E. Black
Dartmouth College - Tuck School of Business ( email )
Hanover, NH 03755
United States
603-646-9635 (Phone)
Shane Sami Dikolli (Contact Author)
Duke University - Fuqua School of Business ( email )
100 Fuqua Drive
Box 90120
Durham, NC 27708-0120
United States
919-660-1949 (Phone)
919-869-1901 (Fax)
Christian Hofmann
Ludwig-Maximilians-Universität München - Faculty of Business Administration (Munich School of Management) ( email )
Kaulbachstr. 45
Munich, 80539
Germany
Feedback to SSRN


Paper statistics
Abstract Views: 1,009
Downloads: 273
Download Rank: 65,984
Citations:  3
Footnotes:  13

© 2014 Social Science Electronic Publishing, Inc. All Rights Reserved.  FAQ   Terms of Use   Privacy Policy   Copyright   Contact Us
This page was processed by apollo5 in 0.484 seconds