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CEO investment of deferred compensation plans and firm performance / Domenico Rocco Cambrea, Stefano Colonnello, Giuliano Curatola, Giulia Fantini

Journal of Business Finance & Accounting, Volume: 46, Issue: 7-8, Pages: 944 - 976

Swansea University Author: Giulia Fantini

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DOI (Published version): 10.1111/jbfa.12382

Abstract

We study how US chief executive officers (CEOs) invest their deferred compensation plans depending on the firm’s profitability. By looking at the correlation between the CEO’s return on these plans and the firm’s stock return, we show that deferred compensation is to a large extent invested in the c...

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Published in: Journal of Business Finance & Accounting
ISSN: 0306-686X 1468-5957
Published: 2019
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URI: https://cronfa.swan.ac.uk/Record/cronfa50269
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Abstract: We study how US chief executive officers (CEOs) invest their deferred compensation plans depending on the firm’s profitability. By looking at the correlation between the CEO’s return on these plans and the firm’s stock return, we show that deferred compensation is to a large extent invested in the company equity in good times and divested from it in bad times. The divestment from company equity in bad times arguably reflects CEOs’ incentive to abandon the firm and to invest in alternative instruments to preserve the value of their deferred compensation plans. This result suggests that the incentive alignment effects of deferred compensation crucially depend on the firm’s health status.
Keywords: Executive Compensation, Deferred Compensation, Corporate Distress
College: School of Management
Issue: 7-8
Start Page: 944
End Page: 976