 Relative performance evaluation and investment efficiencyGuanmin Liao, Jiajing Wang and Jing Xue Pacific-Basin Finance Journal, 2024, vol. 83, issue C Abstract: We investigate the impact of incorporating relative performance targets in long-term equity plans on investment efficiency in China. Using data on 1642 long-term equity incentive plans implemented in 1186 Chinese listed companies from 2001 to 2020, we find that the reduction in inefficient investments after the equity grant is higher for RPE (relative performance evaluation) firms than non-RPE firms. We establish a direct connection between the improved investment efficiency and RPE by assessing the essential conditions and implementation extent of RPE in equity plans. Our findings remain robust after addressing concerns related to endogeneity, potential confounding effects from the simultaneous use of absolute performance evaluation and sample selection bias. Collectively, our analyses demonstrate that benchmarking firms' performance against industry peers through RPE encourages more efficient allocation of investment resources. Keywords: Investment efficiency; Relative performance evaluation; Compensation (search for similar items in EconPapers) Downloads: (external link) Related works: Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text Persistent link: https://EconPapers.repec.org/RePEc:eee:pacfin:v:83:y:2024:i:c:s0927538x2400012x DOI: 10.1016/j.pacfin.2024.102261 Access Statistics for this article Pacific-Basin Finance Journal is currently edited by K. Chan and S. Ghon Rhee More articles in Pacific-Basin Finance Journal from Elsevier |
Is your work missing from RePEc? Here is how to contribute.
Questions or problems? Check the EconPapers FAQ or send mail to .
EconPapers is hosted by the
School of Business at Örebro University.