Principal-agent theory suggests that a manager should be paid relative to a benchmark that captures the effect of market or sector performance on the firm's own performance. Recently, it has been argued that we do not observe such indexation in the data because executives can set pay in their...

There is widespread evidence that bidders are more highly valued than their targets, and that both parties tend to be in temporarily high-valued industries. We find that valuation differences are also uniquely important for predicting who will be acquired and when. A firm is more likely to be a...

Academics have long argued that incentive contracts for executives should be indexed to remove the influence of exogenous market factors. Little evidence has been found that firms engage in such practices, also termed 'relative performance evaluation'. We argue that firms may not gainmuch by...

Employee stock options represent a significant potential source of dilution for many shareholders. It is well known that reported earnings tend to understate the associated costs, but an efficient stock market will show no such bias. If by contrast stock prices underestimate the future costs...

Dissatisfaction with traditional accounting-based performance measures has spawned a number of alternatives, of which Economic Value Added (EVA) is clearly the most prominent. How can we tell which performance measures best capture managerial contributions to value? There is currently a heated...