Asymmetric Sensitivity of CEO Cash Compensation to Stock Returns
Andrew J. Leone
University of Miami
Joanna Shuang Wu
Simon School of Business, University of Rochester
Jerold L. Zimmerman
University of Rochester - Simon School of Business
Simon School, University of Rochester, Research Paper No. FR 06-04
We document that CEO cash compensation is twice as sensitive to negative stock returns as it is to positive stock returns. Since stock returns include both unrealized gains and unrealized losses, we expect cash compensation to be less sensitive to stock returns when returns contain unrealized gains (positive returns) than when returns contain unrealized losses (negative returns). This is consistent with boards of directors exercising discretion to reduce costly ex post settling up in cash compensation paid to CEOs.
Number of Pages in PDF File: 49
Keywords: Compensation, Conservatism, Accounting Earnings
JEL Classification: J33, M41, G34, M52working papers series
Date posted: February 29, 2004
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