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3. Relative Performance Evaluation and Strategic Peer‐Harming Disclosures.

Author

BLOOMFIELD, MATTHEW J., HEINLE, MIRKO S., and TIMMERMANS, OSCAR

Subjects
BUSINESS enterprises, PERFORMANCE evaluation, STOCK prices, CHIEF executive officers, DISCLOSURE, EXECUTIVE compensation, SABOTAGE
Abstract

Many firms use relative stock performance to evaluate and incentivize their CEOs. We document that such firms routinely disclose information that harms their peers' stock prices, and sometimes explicitly mention the harmed peers, by name, in these disclosures. Consistent with deliberate sabotage, peer‐harming disclosures appear to be aimed at peers whose stock price depressions are most likely to benefit the disclosing firms' CEOs. The pricing effect of these disclosures does not reverse, suggesting that the disclosures contain legitimate information regarding peers' prospects. In sum, our results suggest that relative performance evaluation in CEO pay motivates CEOs to internalize the externalities of their disclosures, and strategically disclose information that harms peers' stock prices, in order to improve their firms' relative standing within their peer group. [ABSTRACT FROM AUTHOR]

Published
2024
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19. Essays on accounting disclosure and the use of stock price in incentive contracts

Author

Heinle, Mirko S.

Subjects
330 Wirtschaft
Abstract

This thesis studies the interplay of changes in accounting disclosure and the solution to the stewardship problem. I develop theoretical models that try to explain the different decisions managers, current shareholders, and potential shareholders face. The models incorporate different interdependent aspects of the decision to disclose information, the design of contracts between current shareholders and the corporation’s management, and the aggregation of information into price. My results indicate, for example, that the different interests current and potential shareholders have leads to far reaching impacts of the disclosure of accounting information. The simple statement that more information is always better does not hold and changes of mandatory disclosure can lead to losses for different types of current investors as well as for potential investors.

Published
2009

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