Robert Göx, Beatrice Michaeli, Private Predecision Information and the Pay-Performance Relation, The accounting review, Vol. 98 (2), 2023. (Journal Article)
We study how the precision of managers' private post-contract predecision information affects the pay-performance relation. Endogenizing the information environment, we find that firms may optimally tie executive pay closer to firm performance as agency problems become more pronounced. Specifically, varying parameters measuring the severity of the agency problem, we identify parameter regions where firms with more pronounced agency problems optimally combine uninformative signals with a higher incentive rate than firms with less pronounced agency problems that optimally choose a perfect signal. We find this relation for various measures of the agency conflict such as the incongruency of the performance measure, its susceptibility to manipulation, or the agent's degree of risk aversion. Because the pay-performance sensitivity (PPS) is frequently used for measuring the efficiency of real world compensation arrangements, our results provide relevant insights for empirical research studying the determinants of the relation between executive pay and firm performance. |
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Hui Chen, Robert Göx, Voluntary Disclosure in Leader-Follower Games, In: SSRN, No. 4268220, 2022. (Working Paper)
We study voluntary disclosure strategies in leader-follower games where firms choose real actions sequentially after simultaneously disclosing information. We show that the leader incurs an endogenous consistency cost when withholding information because it must choose a suboptimal real action to avoid that its private information is revealed to the follower. This consistency cost induces the leader to disclose more information in equilibrium than an equally informed follower. We establish this result in the context of a voluntary disclosure model with uncertain information endowment and show that it is robust under alternative modeling choices regarding the disclosure friction, the number of followers, and the impact of firms' private information on their rivals' profit. |
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Robert Göx, Thomas Hemmer, On the relation between managerial power and CEO Pay, Journal of Accounting and Economics, Vol. 69 (2-3), 2020. (Journal Article)
We study how friendly boards design the structure of optimal compensation contracts in favor of powerful CEOs. Our study yields unexpected results. First, powerful managers receive higher pay and a contract with a higher pay-performance sensitivity (PPS) if firm performance is low and vice versa. Moreover, we identify conditions where expected pay and expected PPS are both increasing in the friendliness of the board. Second, we show that friendly boards provide managers with higher salaries, more shares, but less options. Third, friendly boards offering contracts with a higher PPS also make more intensive use of relative performance evaluation (RPE). Overall, our results suggest that frequently used indicators of poor (or sound) compensation practices should be interpreted with care. Extending the scope of our model beyond executive pay, we show that powerful managers underinvest in capital but have less incentives to manage earnings. |
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Robert Göx, Beatrice Michaeli, Optimal information design and incentive contracts with performance measure manipulation, In: SSRN, No. 3484199, 2019. (Working Paper)
We study how a firm owner motivates a manager to create value by optimally designing an information system and a compensation contract based on a manipulable performance measure. In equilibrium, the firm either implements a perfect or an uninformative system. The information system and the pay-performance sensitivity (PPS) of the compensation contract can be substitutes in a sense that the firm optimally combines a perfect information system with a low PPS or an uninformative system with a high PPS. Because the information design is endogenous, firms facing relatively high manipulation threat may offer financial incentives that are higher-powered than the ones offered by their peers facing lower manipulation threat. If the manager is in charge of implementing the information system, he chooses a perfect one unless the firm uses the information for internal control. The firm may prefer to commit to an internal control level before observing any information. |
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Thomas Rüffieux, Three Essays on Investment Decisions in Decentralized Firms, University of Zurich, Faculty of Business, Economics and Informatics, 2019. (Dissertation)
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Freddy Panakkal, Sind für relative Performancemessungen (RPE) selbstgewählte Peergruppen einem Marktindex überlegen? Eine empirische Analyse, University of Zurich, Faculty of Business, Economics and Informatics, 2018. (Master's Thesis)
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Marie-Lena Pfaff, Impact of Ownership Structure and Earnings Management on CEO Compensation, University of Zurich, Faculty of Business, Economics and Informatics, 2018. (Master's Thesis)
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Pablo Cadruvi, Branchenspezifische Untersuchung der Managementvergütung - Analyse der Managementvergütung in Bezug auf die Volatilität der Aktienrenditen im S&P 500, University of Zurich, Faculty of Business, Economics and Informatics, 2018. (Master's Thesis)
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Alexander Hürzeler, Innovationsanreize - Eine Analyse der verwendeten Performance-Masse in innovativen und nicht-innovativen Unternehmen sowie deren Auswirkungen auf die Entwicklung des Marktwertes, University of Zurich, Faculty of Business, Economics and Informatics, 2018. (Bachelor's Thesis)
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Pascal Huber, Die Entwicklung der Kapitalkosten von Schweizer Unternehmen, University of Zurich, Faculty of Business, Economics and Informatics, 2018. (Bachelor's Thesis)
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Fabrizio Ferri, Robert Göx, Executive compensation, corporate governance, and say on pay, Foundations and Trends in Accounting, Vol. 12 (1), 2018. (Journal Article)
This monograph explores the relation between corporate governance and executive compensation and evaluates the conditions under which shareholders can benefit from the right to interfere with the pay setting process by voting on the compensation proposed by the board of directors (Say on Pay). The first part of the monograph lays out the theoretical framework. The second part provides an overview of the origins and country-specific differences in Say on Pay regulation and a detailed summary and evaluation of the empirical literature on the subject. |
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Alexandra Müller, Incentives for intrinsically motivated agents with multiple tasks, University of Zurich, Faculty of Business, Economics and Informatics, 2018. (Bachelor's Thesis)
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Mergim Luboja, Zur Anwendbarkeit der relativen Beitragsabschreibung nach Rogerson und Reichelstein auf Projekte mit negativem Barkapitalwert - Eine Analyse unter Beachtung elementarer Bilanzierungsregeln für Vermögensgegenstände, University of Zurich, Faculty of Business, Economics and Informatics, 2018. (Bachelor's Thesis)
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Robert Göx, Thomas Hemmer, Managerial power and CEO pay, In: SSRN, No. 3020732, 2017. (Working Paper)
We study how the CEO's power over the board of directors affects pay levels and the structure of optimal compensation contracts and derive unexpected results. First, a more powerful CEO generally receives more pay and a contract with a higher pay-performance sensitivity (PPS) if firm performance is low. In contrast, if firm performance is high, more CEO power translates into less pay and a lower PPS. Second, considering a special case of our general model, we show that more powerful CEOs receive higher salaries, more stocks but a nonincreasing number of options. Third, we find that the presence of a powerful CEO generally leaves the optimal use of relative performance evaluation unaffected. However, we identify conditions under which the sensitivity of CEO pay to peer performance can be increasing in the CEO's power over the board. Overall, our results suggest that frequently used indicators of poor (or sound) compensation practices should be interpreted with care. |
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Jeremias Mächler, Die Rolle von Peergruppen für die Bemessung der Höhe der CEO-Vergütung in Banken – eine empirische Analyse, University of Zurich, Faculty of Business, Economics and Informatics, 2017. (Master's Thesis)
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Miró Feller, Presentation of the paper "The Effect of Financial Incentives and Career Concerns on Reporting Bias" at the ACA St. Gallen, In: ACA St. Gallen. 2017. (Conference Presentation)
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Sara Nowakowski, RPE and CEO Turnover Decisions - Ein Literaturüberblick, University of Zurich, Faculty of Business, Economics and Informatics, 2017. (Master's Thesis)
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Arian Kopalla, Ökonomische Ursachen für verzerrte Analystenprognosen – ein Literaturüberblick, University of Zurich, Faculty of Business, Economics and Informatics, 2017. (Bachelor's Thesis)
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Jan Wiki, Managementvergütung in Folge von Unternehmenszusammenschlüssen, Analyse von Zusammenschlüssen Schweizer und europäischer Unternehmen, University of Zurich, Faculty of Business, Economics and Informatics, 2017. (Bachelor's Thesis)
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Stefan Dierkes, Ulrich Schäfer, Corporate taxes, capital structure, and valuation: Combining Modigliani/Miller and Miles/Ezzell, Review of Quantitative Finance and Accounting, Vol. 48 (2), 2017. (Journal Article)
The valuation of a firm with discounted cash flow (DCF) approaches requires assumptions about the firm’s financing strategy. The approaches of Modigliani and Miller and Miles and Ezzell assume that either a passive debt management with predetermined debt levels or active debt management with capital structure targets is applied. Over the last decades, various extensions of these approaches have been developed to allow for a more realistic depiction of financial decision making. However, recent empirical analyses indicate that current theories still have limited power to explain large variances in capital structure across time. We provide an alternative explanation for the empirical observation by assuming that firms combine both capital structure targets and predetermined debt within future periods, and we show how to value a firm given such a partially active debt management. The approaches of Modigliani and Miller and Miles and Ezzell are embedded into a common valuation framework, with the familiar valuation formulas shown as special cases. In a simulation analysis, we illustrate that the textbook valuation formulas may produce considerable valuation errors if a firm applies a partially active debt management. |
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