Relative Performance Evaluation, Sabotage, and Disclosure
50 Pages Posted: 5 Oct 2021 Last revised: 9 Mar 2022
Date Written: March 09, 2022
Many firms use relative stock performance to incentivize their CEOs. We document that these firms routinely disclose information that harms peers’ stock prices. Consistent with deliberate sabotage, peer-harming disclosures appear to be aimed at peers whose stock-price depressions are more likely to benefit the disclosing firms’ CEOs, especially towards the end of a fiscal year. The pricing effect of these disclosures does not reverse, suggesting that the disclosures contain legitimate information regarding peers’ prospects. Collectively, our findings suggest that relative performance evaluation in CEO pay leads to inter-firm sabotage—a notion deemed “unlikely” by prior literature.
Keywords: Relative Performance Evaluation, Sabotage, Voluntary Disclosure, Stock Returns
JEL Classification: G12, G14, J33, M41
Suggested Citation: Suggested Citation