38 Pages Posted: 17 Feb 2003
Date Written: May 14, 2003
Multiple-performance-measure agency models predict that optimal contracts should place greater reliance on performance measures that are more precise and more sensitive to the agent's effort. We apply these predictions to CEO retention decisions. First, we develop an agency model to motivate proxies for signal and noise in firm-level performance measures. We then document that accounting information appears to receive greater weight in turnover decisions when accounting-based measures are more precise and more sensitive. We also present evidence suggesting that market-based performance measures receive less weight in turnover decisions when accounting-based measures are more sensitive or market returns are more variable.
Keywords: contracting, CEO turnover, executive incentives, agency theory, properties of earnings
JEL Classification: J33, J41, M41, M51
Suggested Citation: Suggested Citation
Engel, Ellen and Hayes, Rachel M. and Wang, Xue, CEO Turnover and Properties of Accounting Information (May 14, 2003). JAE Boston Conference 2002. Available at SSRN: https://ssrn.com/abstract=368300 or http://dx.doi.org/10.2139/ssrn.368300
By Kevin Murphy