Does it pay to ‘Be Like Mike’? Aspiratonal peer firms and relative performance evaluation

Ryan T. Ball (), Jonathan Bonham and Thomas Hemmer
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Ryan T. Ball: University of Michigan
Jonathan Bonham: University of Chicago
Thomas Hemmer: Rice University

Review of Accounting Studies, 2020, vol. 25, issue 4, No 10, 1507-1541

Abstract: Abstract We examine the manner and extent to which firms evaluate performance relative to aspirational peer firms. Guided by the predictions of an agency model, we find that CEO compensation increases in the correlation between own and aspirational peer firm performances. In addition, we define and test conditions where aggregate peer performance, which has been the primary focus of prior relative performance evaluation studies of competitive peers, is expected to have an association with CEO compensation. These conditions are supported by our empirical results. Finally, we document that our results are more pronounced when the firm-peer relationship is one-way and the peer firm is in a different industry and therefore is more aspirational.

Keywords: Performance correlation; Relative performance evaluation; Aspirational peers (search for similar items in EconPapers)
JEL-codes: G30 M12 M52 (search for similar items in EconPapers)
Date: 2020
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Citations: View citations in EconPapers (1)

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DOI: 10.1007/s11142-020-09540-1

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