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Asymmetric Sensitivity of CEO Cash Compensation to Stock ReturnsAndrew J. LeoneUniversity of Miami Joanna Shuang WuSimon School of Business, University of Rochester Jerold L. ZimmermanUniversity of Rochester - Simon School of Business February 2005 Simon School, University of Rochester, Research Paper No. FR 06-04 Abstract: 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, M52 working papers seriesDate posted: February 29, 2004Suggested CitationContact Information
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