CEO bonus compensation: the effects of missing analysts’ revenue forecasts

Christopher Edmonds (), Ryan Leece () and John Maher ()

Review of Quantitative Finance and Accounting, 2013, vol. 41, issue 1, 149-170

Abstract: We investigate the incremental contract relevance of analysts’ revenue forecasts while controlling for earnings forecasts and find CEOs receive smaller bonuses when missing analysts’ annual and quarterly revenue expectations. Our results support the link between the value relevance of the revenue performance measure and the contract relevance of that measure. Further, we find revenue forecasts to be more contract relevant for CEOs of firms with high growth expectations, consistent with Rees and Sivaramakrishnan’s Contemp Acc Res 24(1):259–290, ( 2007 ) findings that growth firms receive a larger market penalty for missing revenue targets. Overall, our findings provide empirical support for the conjecture that compensation committees rely on information consistent with that conveyed in analysts’ revenue forecasts when contracting with management. Copyright Springer Science+Business Media, LLC 2013

Keywords: Analysts’ forecasts; Executive compensation; Missing benchmarks; G17; J33; M41; M53 (search for similar items in EconPapers)
Date: 2013
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Citations: View citations in EconPapers (6)

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DOI: 10.1007/s11156-012-0305-0

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