Quotation Salitskiy, Igor, Ambrus, Attila, Chaney, Eric. 2015. Pirates of the Mediterranean: An Empirical Investigation of Bargaining with Asymmetric Information.


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Abstract

Using a large dataset of performance goals employed in executive incentive contracts we find that a disproportionately large number of firms exceed their goals by a small margin as compared to the number that fall short of the goal by a similar margin. This asymmetry is particularly acute for earnings and profit goals, when compensation is contingent on a single goal and is present for both long-term and short-term goals, when the pay-for-performance relationship is concave or convex and for grants with cash or stock payout. Firms that exceed their compensation target by a small margin are more likely to beat the target the next period and CEOs of firms that miss their targets are more likely to experience a forced turnover. Firms that just exceed their EPS goals have higher abnormal accruals and lower Research and Development (R&D) expenditures and firms that just exceed their profit goals have lower SG&A expenditures. Overall, our results highlight some of the costs of linking managerial compensation to specific compensation targets.

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Publication's profile

Status of publication Published
Affiliation WU
Type of publication Working/discussion paper, preprint
Language English
Title Pirates of the Mediterranean: An Empirical Investigation of Bargaining with Asymmetric Information
Year 2015

Associations

People
Salitskiy, Igor (Former researcher)
External
Ambrus, Attila (Duke University, United States/USA)
Chaney, Eric (Harvard University, United States/USA)
Organization
Institute for Finance, Banking and Insurance IN (Details)
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