Getting the Incentives Right: Backfilling and Biases in Executive Compensation Data
Review of Financial Studies, Forthcoming
59 Pages Posted: 9 Apr 2013 Last revised: 2 Mar 2017
Date Written: November 1, 2016
We document that backfilling in the ExecuComp database introduces a data-conditioning bias that can affect inferences and make replication of previous work difficult. Although backfilling can be advantageous due to greater data coverage, if not addressed the over-sampling of firms with strong managerial incentives and higher subsequent returns leads to a significant upward bias in abnormal compensation, pay-for-performance sensitivity, and the magnitudes of several previously established relations. The bias can also lead to misinterpretations of the appropriate functional form of a relation and whether the data supports one compensation theory over another. We offer methods to address this issue.
Keywords: executive compensation
JEL Classification: J33, J44, G30
Suggested Citation: Suggested Citation