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CEO Investment of Deferred Compensation Plans and Firm Performance

SAFE Working Paper No. 160

69 Pages Posted: 14 Dec 2016 Last revised: 16 Apr 2019

See all articles by Domenico Cambrea

Domenico Cambrea

Università degli Studi della Calabria; Bocconi University - Department of Management and Technology

Stefano Colonnello

Ca Foscari University of Venice; Halle Institute for Economic Research

Giuliano Curatola

University of Siena - Department of Economics and Statistics; Leibniz Institute for Financial Research SAFE

Giulia Fantini

Swansea University

Multiple version iconThere are 2 versions of this paper

Date Written: January 2019

Abstract

We study how US chief executive officers (CEOs) invest their deferred compensation plans depending on the firm's profitability. By looking at the correlation between the CEO's return on these plans and the firm's stock return, we show that deferred compensation is to a large extent invested in the company equity in good times and divested from it in bad times. The divestment from company equity in bad times arguably reflects CEOs' incentive to “abandon” the firm and to invest in alternative instruments to preserve the value of their deferred compensation plans. This result suggests that the incentive alignment effects of deferred compensation crucially depend on the firm's health status.

Keywords: Executive Compensation, Deferred Compensation, Corporate Distress

JEL Classification: G32, G34

Suggested Citation

Cambrea, Domenico and Colonnello, Stefano and Curatola, Giuliano and Fantini, Giulia, CEO Investment of Deferred Compensation Plans and Firm Performance (January 2019). SAFE Working Paper No. 160, Available at SSRN: https://ssrn.com/abstract=2884600 or http://dx.doi.org/10.2139/ssrn.2884600

Domenico Cambrea

Università degli Studi della Calabria ( email )

Ponte Bucci, Cubo 3C
Rende, Cosenza 87036
Italy

Bocconi University - Department of Management and Technology ( email )

Via Roentgen 1
Milan, MI 20136
Italy

Stefano Colonnello

Ca Foscari University of Venice ( email )

Dorsoduro 3246
Venice, Veneto 30123
Italy

Halle Institute for Economic Research ( email )

P.O. Box 11 03 61
Kleine Maerkerstrasse 8
D-06017 Halle, 06108
Germany

Giuliano Curatola (Contact Author)

University of Siena - Department of Economics and Statistics ( email )

Piazza San Francesco 7
Siena, Siena 53100
Italy

Leibniz Institute for Financial Research SAFE ( email )

(http://www.safe-frankfurt.de)
Theodor-W.-Adorno-Platz 3
Frankfurt am Main, 60323
Germany

Giulia Fantini

Swansea University ( email )

School of Management
Bay Campus, Fabian Way
Swansea, SA1 8EN
United Kingdom
01792295775 (Phone)

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