CEO Investment of Deferred Compensation Plans and Firm Performance

33 Pages Posted: 27 May 2020

See all articles by Domenico Rocco Cambrea

Domenico Rocco Cambrea

Bocconi University

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

Date Written: July/August 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: corporate distress, deferred compensation, executive compensation

JEL Classification: G32, G34

Suggested Citation

Cambrea, Domenico Rocco and Colonnello, Stefano and Curatola, Giuliano and Fantini, Giulia, CEO Investment of Deferred Compensation Plans and Firm Performance (July/August 2019). Journal of Business Finance & Accounting, Vol. 46, Issue 7-8, pp. 944-976, 2019, Available at SSRN: https://ssrn.com/abstract=3604480 or http://dx.doi.org/10.1111/jbfa.12382

Domenico Rocco Cambrea (Contact Author)

Bocconi University

Via Sarfatti, 25
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

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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