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Performance pay and catering incentives

Francisco Marcet

Finance Research Letters, 2018, vol. 27, issue C, 12-22

Abstract: This paper explores how boards of directors design executive compensation to cater to investor demand. Following the literature of catering incentives and using a comprehensive dataset of accounting-based performance goals, we show that firms tie executive compensation to accounting goals (pay-for-performance) according to investor preferences for specific accounting metrics. Moreover, firms with powerful CEOs are less affected by investor demand for accounting metrics. Finally, our results are robust to alternative specifications and subsamples.

Keywords: CEO; Pay for performance; Accounting goals; Catering incentives (search for similar items in EconPapers)
Date: 2018
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