Relative performance evaluation and competitive aggressiveness

Christoph Feichter, Frank Moers and Oscar Timmermans

LSE Research Online Documents on Economics from London School of Economics and Political Science, LSE Library

Abstract: We examine the relation between incentive plans based on relative performance and competitive aggressiveness. Using data on executive incentive-compensation contracts in large U.S. firms, we find a positive association between competitive aggressiveness and peer group overlap—that is, the extent to which two firms select each other as peers in these incentive plans. Our findings indicate that managers of such firms take more frequent as well as more complex competitive actions, relative to managers evaluated on relative performance without peer group overlap. Moreover, we show that these competitive tactics are more pronounced when managers compete against: (1) peers with similar grant sizes, (2) peers on similar performance metrics, and (3) peers in the same industry. Collectively, our findings provide evidence on how widely used incentive-compensation practices relate to strategic firm decisions.

Keywords: collusion; competitive aggressiveness; peer group overlap; relative performance evaluation; strategic interaction (search for similar items in EconPapers)
JEL-codes: J33 J41 L10 M40 (search for similar items in EconPapers)
Pages: 55 pages
Date: 2022-12-01
New Economics Papers: this item is included in nep-bec and nep-hrm
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (2)

Published in Journal of Accounting Research, 1, December, 2022, 60(5), pp. 1859 - 1913. ISSN: 0021-8456

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Persistent link: https://EconPapers.repec.org/RePEc:ehl:lserod:115630

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