Does It Pay to 'Be Like Mike'? Aspirational Peer Firms and Relative Performance Evaluation

43 Pages Posted: 20 May 2017 Last revised: 10 Aug 2018

See all articles by Ryan T. Ball

Ryan T. Ball

The Stephen M. Ross School of Business at the University of Michigan

Jonathan Bonham

The University of Chicago Booth School of Business

Thomas Hemmer

Rice University - Jesse H. Jones Graduate School of Business

Date Written: July 2018

Abstract

We examine the manner and extent to which firms evaluate performance relative to aspirational peer firms. Guided by the predictions of an agency model, we find that CEO compensation increases in the correlation between own and aspirational peer firm performances. In addition, we define and test conditions where aggregate peer performance, which has been the primary focus of prior relative performance evaluation studies of competitive peers, is expected to have an association with CEO compensation. These conditions are supported by our empirical results. Finally, we document that our results are more pronounced when the firm-peer relationship is one-way and the peer firm is in a different industry and therefore is more aspirational.

Keywords: aspirational peer groups, relative performance evaluation, performance correlation

JEL Classification: G30, M12, M52

Suggested Citation

Ball, Ryan T. and Bonham, Jonathan and Hemmer, Thomas, Does It Pay to 'Be Like Mike'? Aspirational Peer Firms and Relative Performance Evaluation (July 2018). Available at SSRN: https://ssrn.com/abstract=2971287 or http://dx.doi.org/10.2139/ssrn.2971287

Ryan T. Ball (Contact Author)

The Stephen M. Ross School of Business at the University of Michigan ( email )

701 Tappan Street
Ann Arbor, MI MI 48109
United States

Jonathan Bonham

The University of Chicago Booth School of Business ( email )

1101 East 58th Street
Chicago, IL 60637-1561
United States
7738344748 (Phone)

HOME PAGE: http://https://www.chicagobooth.edu/faculty/directory/b/jonathan-bonham

Thomas Hemmer

Rice University - Jesse H. Jones Graduate School of Business ( email )

6100 South Main Street
P.O. Box 1892
Houston, TX 77005-1892
United States

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