Matching Items (8)
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- All Subjects: Accounting
- Creators: Matejka, Michal
- Member of: ASU Electronic Theses and Dissertations
Description
In this study, I examine the extent to which firms rely on relative performance evaluation (RPE) when setting executive compensation. In particular, I examine whether firms use information about peer performance to determine compensation at the end of the year, i.e. after both firm and peer performance are observed. I find that RPE is most pronounced for firms that allow little or no scope for ex post subjective adjustments to annual bonuses. Conversely, firms that rely mainly on subjectivity in determining bonus exhibit little use of RPE. These findings suggest that information about peer performance is not used at the end of the year. Instead, peer performance seems to be incorporated in performance targets at the beginning of the year, at least among firms primarily using objective performance measurements. In addition, I provide new evidence on the determinants of the use of subjectivity.
ContributorsTsui, Stephanie (Author) / Matejka, Michal (Thesis advisor) / Hwang, Yuhchang (Committee member) / Kaplan, Steven (Committee member) / Arizona State University (Publisher)
Created2013
Description
In this paper, I investigate whether participation in employee stock option exchange programs contains private information about future stock returns. High participation in employee stock option exchange programs is associated with negative future abnormal returns over the ensuing 12-month period. This association is moderated by the transparency of the firm's information environment: high institutional ownership and high financial statement informativeness weaken the negative relation between participation and abnormal returns. Controlling for transparency of the firms' information environment, the association between participation and future returns arises primarily from firms that allow the CEO to participate.
ContributorsMakridis, Vanessa Radick (Author) / Matejka, Michal (Thesis advisor) / Hwang, Yuhchang (Committee member) / Kaplan, Steven E (Committee member) / Arizona State University (Publisher)
Created2013
Description
Prior studies examine how the use of earnings for valuation purposes is related to the use of earnings in contracting. I extend this literature by examining the value relevance of internal earnings relative to targets, a performance measure widely used in annual bonus contracts. Internal earnings relative to targets could be value relevant because they reflect board’s private information or the quality of firm’s management control systems. However, any internal performance measure could also be manipulated by the board or management, which would undermine its reliability and relevance to capital market participants. Using hand-collected data on internal earnings and annual bonus targets in Chief Executive Officer (CEO) cash bonus plans, I find that internal earnings relative to targets strongly predict annual stock returns. This effect is incremental to that of Generally Accepted Accounting Principles (GAAP) and street earnings surprises, as well as management earnings guidance surprises. Moreover, this effect is stronger for firms with more detailed disclosure about compensation contracts and with better governance. Buttressing the stock return results, I further show that internal earnings relative to targets predict future cash flows. This evidence suggests that the value of internal earnings relative to targets extends beyond its traditional role in contracting.
ContributorsLee, Eugie (Author) / Matejka, Michal (Thesis advisor) / Kaplan, Steve (Committee member) / Hugon, Artur (Committee member) / Arizona State University (Publisher)
Created2023
Description
This study provides new evidence on the choice of performance measures used in dual-class firms to incentivize CEOs. The choice of performance measures is informative about the extent to which the board of directors focuses CEO efforts on firms' long-term versus short-term objectives. To empirically operationalize performance evaluation horizon, I measure the length of the performance evaluation period in CEO stock awards, the use of stock-based measures, and the use of peer-based measures. I collect data on 419 dual-class firms and match them with a control group of single-class firms. I find that market-based metrics are less likely to be used by dual-class firms relative to single-class firms. In addition, I find that peer-based measures are much less common for dual-class than single-class firms. These findings suggest that dual-class firms shield their executives from short-term market pressures and design stock compensation contracts that deemphasize volatile stock prices.
ContributorsLi, Ji (Author) / Matejka, Michal (Thesis advisor) / Hwang, Yuhchang (Committee member) / Reckers, Philip (Committee member) / Arizona State University (Publisher)
Created2014
Description
The relative performance evaluation (RPE) hypothesis holds that executive compensation should not depend on uncontrollable exogenous shocks. Nevertheless, prior studies often find limited empirical support for this hypothesis in part because it is difficult to identify peers exposed to the same exogenous shocks. I propose a new way to identify peers and to test the RPE hypothesis in the context of a specific shock. In particular, I select peers based on the sensitivity of their stock returns to exchange rate fluctuations. I find evidence that firms respond to large exchange rate movements by ex post adjusting their peer selection to include peers with similar exchange rate risk exposure. Moreover, after allowing for ex post peer group adjustments, I find a much stronger support for the RPE hypothesis than most of prior work.
ContributorsChen, Bing (Author) / Matejka, Michal (Thesis advisor) / Casas Arce, Pablo (Committee member) / Kaplan, Steve (Committee member) / Arizona State University (Publisher)
Created2017
Description
Relative performance evaluation (RPE) in Chief Executive Officer (CEO) compensation contracts entails the use of peer performance to filter out exogenous shocks and reduce exposure to risk. Theory predicts that high-quality peers can effectively filter out noise from performance measurement, yet prior empirical studies do not examine how differences in peer quality affect the use of RPE in practice. In this study, I propose a model to select peers with the highest capacity to filter out noise and introduce a novel measure of peer quality. Consistent with the theory, I find that firms with high quality peers rely on RPE to a greater extent than firms with few good peers available. I also examine the extent to which peers disclosed in proxy statements overlap with the best peers predicted by my model. I find that the overlap is positively associated with institutional ownership, use of top 5 compensation consultants, and compensation committee competence.
ContributorsCho, Jeh-Hyun (Author) / Matejka, Michal (Thesis advisor) / Kaplan, Steve (Committee member) / Casas-Arce, Pablo (Committee member) / Arizona State University (Publisher)
Created2020
Description
This study examines how short selling threats affect firms’ non-generally accepted accounting principles (non-GAAP) reporting quality. From 2005 to 2007, the SEC implemented a Pilot Program under Regulation SHO, in which one-third of the Russell 3000 index stocks were randomly chosen as pilot stocks and exempted from short-sale price tests. As a result, short selling threats increased considerably for pilot stocks. Using difference-in-differences tests, I find that pilot firms respond to the increased short selling threats by reducing the use of low-quality non-GAAP exclusions, resulting in an improvement in the quality of overall non-GAAP exclusions. Further tests show that this effect of short selling threats is more pronounced for smaller firms, firms with lower institutional ownership, firms with lower analyst coverage, and firms with lower ratios of fundamental value to market value. These findings suggest short sellers play an important monitoring role in disciplining managers, as evidenced by the non-GAAP reporting choices of managers.
ContributorsLiu, Junjun (Author) / Faurel, Lucile (Thesis advisor) / Li, Yinghua (Committee member) / Rykaczewski, Maria (Committee member) / Arizona State University (Publisher)
Created2020
Description
Recent research finds that there is significant variation in stock market participation by state and suggests that there might be state-specific factors that determine household stock market participation in the United States. Using household survey data, I examine how accounting quality of public companies at the state level affects households’ stock market participation decisions. I find that households residing in states where local public companies have better accounting quality are more likely to invest in stocks. Moreover, those households invest greater amounts of their wealth in the stock market. Cross-sectional tests find that the effect of accounting quality on stock market participation is more pronounced for less affluent and less educated households, consistent with prior findings that lacking familiarity with and trust in the stock market is an important factor deterring those types of households from stock investments. In state-level tests, I find that these household outcomes affect income inequality, which is less severe in states where high public-firm accounting quality spurs more stock market participation by poorer households. Conversely, in states where public firms have lower accounting quality, stock market participation among poorer households is less common, and a larger share of high equity returns accrues to richer households, exacerbating income inequality.
ContributorsKim, Min (Author) / Huang, Xiaochuan (Thesis advisor) / Rykaczewski, Maria (Committee member) / White, Roger (Committee member) / Arizona State University (Publisher)
Created2020