Exposures to common shocks along supply chains and relative performance evaluation in CEO compensation contracts

IF 5.9 1区经济学 Q1 BUSINESS, FINANCE

Journal of Corporate Finance Pub Date : 2025-05-29 DOI:10.1016/j.jcorpfin.2025.102827

YiLin Wu , Richard Lok-Si Ieong , Shawn Thomas

{"title":"Exposures to common shocks along supply chains and relative performance evaluation in CEO compensation contracts","authors":"YiLin Wu , Richard Lok-Si Ieong , Shawn Thomas","doi":"10.1016/j.jcorpfin.2025.102827","DOIUrl":null,"url":null,"abstract":"<div><div>A fundamental prediction from principal-agent theory is that firms facing greater ex ante exposures to exogenous common shocks should more frequently utilize relative performance evaluation (RPE) in CEO compensation contracts. Recent advances in modeling the economy as a supply network consisting of sectors connected through input-output linkages establish that industries positioned more centrally or upstream face greater ex ante exposures to exogenous common shocks propagating through the network. This paper investigates the impact of firms' network positions on the use of RPE in CEO compensation. We find that firms in industries positioned more centrally or upstream use RPE more frequently and base greater fractions of CEO pay on RPE. We also document that network positions explain variation in firms' RPE-plan implementation via the selection of peers. Our findings are consistent with boards using RPE to filter from CEO pay exogenous shocks to firm performance inherent in firms' supply network positions.</div></div>","PeriodicalId":15525,"journal":{"name":"Journal of Corporate Finance","volume":"94 ","pages":"Article 102827"},"PeriodicalIF":5.9000,"publicationDate":"2025-05-29","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":"0","resultStr":null,"platform":"Semanticscholar","paperid":null,"PeriodicalName":"Journal of Corporate Finance","FirstCategoryId":"96","ListUrlMain":"https://www.sciencedirect.com/science/article/pii/S0929119925000951","RegionNum":1,"RegionCategory":"经济学","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":null,"EPubDate":"","PubModel":"","JCR":"Q1","JCRName":"BUSINESS, FINANCE","Score":null,"Total":0}

引用次数: 0

Abstract

A fundamental prediction from principal-agent theory is that firms facing greater ex ante exposures to exogenous common shocks should more frequently utilize relative performance evaluation (RPE) in CEO compensation contracts. Recent advances in modeling the economy as a supply network consisting of sectors connected through input-output linkages establish that industries positioned more centrally or upstream face greater ex ante exposures to exogenous common shocks propagating through the network. This paper investigates the impact of firms' network positions on the use of RPE in CEO compensation. We find that firms in industries positioned more centrally or upstream use RPE more frequently and base greater fractions of CEO pay on RPE. We also document that network positions explain variation in firms' RPE-plan implementation via the selection of peers. Our findings are consistent with boards using RPE to filter from CEO pay exogenous shocks to firm performance inherent in firms' supply network positions.

查看原文本刊更多论文

供应链中常见冲击的暴露与CEO薪酬合同中的相对绩效评估

委托代理理论的一个基本预测是，面对更大的外生共同冲击的企业应该更频繁地在CEO薪酬合同中使用相对绩效评估（RPE）。将经济建模为一个由通过投入产出联系连接的部门组成的供应网络的最新进展表明，位置更靠中心或靠上游的行业面临更大的预先暴露于通过网络传播的外生共同冲击。本文研究了企业网络地位对CEO薪酬中RPE使用的影响。我们发现，处于更集中或上游行业的公司更频繁地使用RPE，并将更大比例的CEO薪酬基于RPE。我们还证明了网络位置通过同伴的选择解释了公司rpe计划实施的变化。我们的发现与董事会使用RPE来过滤CEO薪酬对公司供应网络位置固有的公司绩效的外生冲击是一致的。

本文章由计算机程序翻译，如有差异，请以英文原文为准。

求助全文

约1分钟内获得全文求助全文

来源期刊

Journal of Corporate Finance BUSINESS, FINANCE-

CiteScore

11.80

自引率

3.30%

发文量

期刊介绍： The Journal of Corporate Finance aims to publish high quality, original manuscripts that analyze issues related to corporate finance. Contributions can be of a theoretical, empirical, or clinical nature. Topical areas of interest include, but are not limited to: financial structure, payout policies, corporate restructuring, financial contracts, corporate governance arrangements, the economics of organizations, the influence of legal structures, and international financial management. Papers that apply asset pricing and microstructure analysis to corporate finance issues are also welcome.