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

52 Pages Posted: 19 Mar 2010 Last revised: 2 Dec 2016

See all articles by Michael J. Cooper

Michael J. Cooper

University of Utah - David Eccles School of Business

Huseyin Gulen

Mitchell E. Daniels, Jr School of Business, Purdue University; Purdue University - Krannert School of Management

P. Raghavendra Rau

University of Cambridge

Date Written: November 1, 2016

Abstract

Measures of Chief Executive Officer (CEO) excess compensation are negatively related to future firm returns and operating performance. The effect is stronger for more overconfident CEOs at firms with weaker corporate governance. Overconfident CEOs receiving high excess pay undertake activities such as overinvestment and value-destroying mergers and acquisitions that lead to shareholder wealth losses.

Keywords: Executive compensation, Pay-performance relationship

JEL Classification: G34, J33

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 (November 1, 2016). Available at SSRN: https://ssrn.com/abstract=1572085 or http://dx.doi.org/10.2139/ssrn.1572085

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

Mitchell E. Daniels, Jr School of Business, Purdue University ( email )

403 Mitch Daniels Blvd.
West Lafayette, IN 47907
United States

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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