The impact of research and development on relative performance evaluation in the UK

Abstract This paper analyses the impact of the emergence of new funds on the portfolio decisions of mutual fund managers who are evaluated on the basis of relative performance within a dynamic model. Recent theoretical literature has pointed to the inefficiencies in portfolio selection caused by relative performance evaluation of fund managers. We find that the on-going process of creation of new funds, by posing an entry threat to the incumbent fund managers, greatly alleviates these inefficiencies. Hence the transitory market structure that characterises the mutual fund industry could explain why relative performance evaluation is widely in use.

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Do Growth-Option Firms Use Less Relative Performance Evaluation?

The Accounting Review ◽

10.2308/accr-50574 ◽

2013 ◽

Vol 89 (1) ◽

pp. 27-60 ◽

Cited By ~ 31

Author(s):

Ana Maria Albuquerque

Keyword(s):

Performance Evaluation ◽

Peer Group ◽

Principal Component ◽

Relative Performance ◽

Data Availability ◽

Growth Options ◽

Relative Performance Evaluation ◽

Compensation Contracts ◽

Growth Option ◽

The Impact

ABSTRACT The use of relative performance evaluation (RPE) in compensation contracts for CEOs at growth-option (GO) firms that operate in more volatile environments can provide insurance against common exogenous shocks and thus reduce the amount of risk that CEOs face. However, the implementation of RPE for high-GO firms can be impaired by these firms' inability to find a peer group that captures common risk exposure. This paper studies GO firms' reliance on RPE and finds that the use of RPE in CEO compensation contracts varies negatively with a firm's level of growth options. The tests use three proxies for growth options: the market-to-book value of assets, research and development expenses scaled by assets, and a factor obtained from a principal component analysis. The results are robust to controlling for the impact of other firm characteristics on pay-for-performance sensitivities. Data Availability: All data are obtained from publicly available sources.

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Board interlock networks and the use of relative performance evaluation

International Journal of Accounting and Information Management ◽

10.1108/ijaim-06-2013-0039 ◽

2014 ◽

Vol 22 (3) ◽

pp. 237-251 ◽

Cited By ~ 8

Author(s):

Qian Hao ◽

Nan Hu ◽

Ling Liu ◽

Lee J. Yao

Keyword(s):

Performance Evaluation ◽

Boards Of Directors ◽

Ceo Compensation ◽

Chief Executive ◽

Relative Performance ◽

Board Members ◽

Relative Performance Evaluation ◽

Interlocking Directorates ◽

Content Type ◽

The Impact

Purpose – The purpose of this paper is to explore how networks of boards of directors affect relative performance evaluation (RPE) in chief executive officer (CEO) compensation. Design/methodology/approach – In this study, the authors propose that an interlocking network is an important inter-corporate setting, which has a bearing on whether boards decide to use RPE in CEO compensation. They adopt four typical graph measures to depict the centrality/position of each board in the interlock network: degree, betweenness, eigenvector and closeness, and study their impacts on RPE use. Findings – The authors find that firms that have more connected board members and whose board members are connected to better connected firms are more likely to reward their CEOs contingent on their peers’ performance, indicating that information transmission along the board interlock network facilitates the adoption of RPE. This result is robust to alternative measures for board interlock networks and various types of CEO compensation. It highlights the role of interlocking directorates in disseminating information and practice of RPE use along board network. Originality/value – The authors use social network analysis to measure the relationships and flows between the connected nodes and study the impact on executive compensation design.

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