Relative Performance Evaluation, Sabotage, and Disclosure

50 Pages Posted: 5 Oct 2021 Last revised: 9 Mar 2022

See all articles by Matthew J. Bloomfield

Matthew J. Bloomfield

The Wharton School of the University of Pennsylvania

Mirko Stanislav Heinle

University of Pennsylvania - Accounting Department

Oscar Timmermans

London School of Economics & Political Science (LSE)

Date Written: March 09, 2022

Abstract

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

Bloomfield, Matthew J. and Heinle, Mirko Stanislav and Timmermans, Oscar, Relative Performance Evaluation, Sabotage, and Disclosure (March 09, 2022). Available at SSRN: https://ssrn.com/abstract=3936860 or http://dx.doi.org/10.2139/ssrn.3936860

Matthew J. Bloomfield (Contact Author)

The Wharton School of the University of Pennsylvania ( email )

1325 Steinberg-Dietrich Hall
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6073513042 (Fax)

Mirko Stanislav Heinle

University of Pennsylvania - Accounting Department ( email )

3641 Locust Walk
Philadelphia, PA 19104-6365
United States

Oscar Timmermans

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

Houghton Street
London, WC2A 2AE
United Kingdom

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