Relative performance evaluation with business group affiliation as a source of common risk

Yoon K. Choi, Seung Hun Han and Yonghyun Kwon

Global Finance Journal, 2024, vol. 60, issue C

Abstract: This study examines relative performance evaluation (RPE) for CEO compensation in business groups called “chaebols” in Korea. We find strong evidence of RPE when peers are member firms within the same business group, particularly when a firm has an established compensation committee or is run by a professional CEO (rather than a family CEO). This result is consistent with the argument that the affiliated firms within a business group may face significant common shocks affecting their performance. Therefore, aggregate group performance may be an excellent RPE benchmark for filtering out common risks from CEO compensation measurement.

Keywords: Business group affiliation; Compensation committee; Family CEO; Relative performance evaluation (search for similar items in EconPapers)
JEL-codes: G32 G34 J33 J44 M14 (search for similar items in EconPapers)
Date: 2024
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Persistent link: https://EconPapers.repec.org/RePEc:eee:glofin:v:60:y:2024:i:c:s1044028324000012

DOI: 10.1016/j.gfj.2024.100929

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