Relative Performance Evaluation and Competitive Aggressiveness

72 Pages Posted: 14 May 2019 Last revised: 11 May 2021

See all articles by Christoph Feichter

Christoph Feichter

WU Vienna University of Economics and Business

Frank Moers

Maastricht University School of Business and Economics; European Centre for Corporate Engagement (ECCE)

Oscar Timmermans

London School of Economics & Political Science (LSE)

Date Written: May 10, 2020

Abstract

We examine the relation between incentive plans based on relative performance and competitive aggressiveness. Using data on executive incentive-compensation contracts in large U.S. firms, we find a positive association between competitive aggressiveness and peer group overlap—i.e., the extent to which two firms select each other as peers in these incentive plans. Our findings indicate that managers of such firms take more frequent as well as more complex competitive actions, relative to managers evaluated on relative performance without peer group overlap. Moreover, we show that these competitive tactics are more pronounced when: (1) managers compete against peers with similar grant sizes; (2) managers compete against peers on similar performance metrics; and (3) managers compete against larger peer groups. Collectively, our findings provide evidence on how widely used incentive-compensation practices impact strategic firm decisions.

Keywords: relative performance evaluation, peer group overlap, competitive aggressiveness, strategic interaction, collusion

JEL Classification: J33, J41, L1, M4

Suggested Citation

Feichter, Christoph and Moers, Frank and Timmermans, Oscar, Relative Performance Evaluation and Competitive Aggressiveness (May 10, 2020). Available at SSRN: https://ssrn.com/abstract=3381072 or http://dx.doi.org/10.2139/ssrn.3381072

Christoph Feichter

WU Vienna University of Economics and Business ( email )

Welthandelsplatz 1, Building D1, 3rd Floor
Vienna, 1020
Austria

Frank Moers (Contact Author)

Maastricht University School of Business and Economics ( email )

Maastricht

HOME PAGE: http://www.maastrichtuniversity.nl/sbe

European Centre for Corporate Engagement (ECCE) ( email )

Tongersestraat 53
Maastricht, 6211LM
Netherlands

Oscar Timmermans

London School of Economics & Political Science (LSE) ( email )

Houghton Street
London, WC2A 2AE
United Kingdom

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