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Does it pay to ‘Be Like Mike’? Aspiratonal peer firms and relative performance evaluation

Author

Listed:
  • Ryan T. Ball

    (University of Michigan)

  • Jonathan Bonham

    (University of Chicago)

  • Thomas Hemmer

    (Rice University)

Abstract

We examine the manner and extent to which firms evaluate performance relative to aspirational peer firms. Guided by the predictions of an agency model, we find that CEO compensation increases in the correlation between own and aspirational peer firm performances. In addition, we define and test conditions where aggregate peer performance, which has been the primary focus of prior relative performance evaluation studies of competitive peers, is expected to have an association with CEO compensation. These conditions are supported by our empirical results. Finally, we document that our results are more pronounced when the firm-peer relationship is one-way and the peer firm is in a different industry and therefore is more aspirational.

Suggested Citation

  • Ryan T. Ball & Jonathan Bonham & Thomas Hemmer, 2020. "Does it pay to ‘Be Like Mike’? Aspiratonal peer firms and relative performance evaluation," Review of Accounting Studies, Springer, vol. 25(4), pages 1507-1541, December.
    • Handle: RePEc:spr:reaccs:v:25:y:2020:i:4:d:10.1007_s11142-020-09540-1
    DOI: 10.1007/s11142-020-09540-1
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    More about this item

    Keywords

    Performance correlation; Relative performance evaluation; Aspirational peers;
    All these keywords.

    JEL classification:

    • G30 - Financial Economics - - Corporate Finance and Governance - - - General
    • M12 - Business Administration and Business Economics; Marketing; Accounting; Personnel Economics - - Business Administration - - - Personnel Management; Executives; Executive Compensation
    • M52 - Business Administration and Business Economics; Marketing; Accounting; Personnel Economics - - Personnel Economics - - - Compensation and Compensation Methods and Their Effects

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