45 Pages Posted: 19 Nov 2010
Date Written: July 11, 2010
The impact of CEO incentive compensation on firm performance is difficult to quantify because performance also affects incentives. To circumvent this problem, I form an estimate of the changes in CEO incentives caused by exogenous stock price movements using a return index for each firm’s peer group and lagged CEO holdings. For the mean incentive level, Tobin’s q increases by 10.0% compared to that of counterfactual firms that lack CEO incentive compensation. I also introduce an ex ante measure of the CEO’s discretion over her incentive portfolio and show that the greater this discretion the less incentives mitigate agency conflicts.
JEL Classification: G3, G30
Suggested Citation: Suggested Citation
Tumarkin, Robert, How Much Do CEO Incentives Matter? (July 11, 2010). 23rd Australasian Finance and Banking Conference 2010 Paper. Available at SSRN: https://ssrn.com/abstract=1711504 or http://dx.doi.org/10.2139/ssrn.1711504