Peer Firms in Relative Performance Evaluation

50 Pages Posted: 27 Mar 2009 Last revised: 20 Apr 2009

See all articles by Ana M. Albuquerque

Ana M. Albuquerque

Boston University Questrom School of Business

Date Written: March 26, 2009

Abstract

Relative performance evaluation (RPE) in CEO compensation provides insurance against external shocks and yields a more informative measure of CEO actions. I argue that empirical evidence on the use of RPE is mixed because previous studies rely on a misspecified peer group. External shocks and flexibility in responding to the shocks are functions of, for example, the firm's technology, the complexity of the organization, and the ability to access external credit, which depend on firm size. When peers are composed of similar industry-size firms, evidence is consistent with the use of RPE in CEO compensation.

JEL Classification: J33, G34, G32

Suggested Citation

Albuquerque, Ana M., Peer Firms in Relative Performance Evaluation (March 26, 2009). Journal of Accounting & Economics (JAE), Forthcoming. Available at SSRN: https://ssrn.com/abstract=1368893 or http://dx.doi.org/10.2139/ssrn.1368893

Ana M. Albuquerque (Contact Author)

Boston University Questrom School of Business ( email )

595 Commonwealth Avenue
Boston, MA 02215
United States
617-358-4185 (Phone)
617-353-6667 (Fax)

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