Business Publications
Document Type
Article
Publication Date
2020
Volume
9
Issue
2
Journal
Review of Corporate Finance Studies
First Page
256
URL with Digital Object Identifier
https://doi.org/10.1093/rcfs/cfaa004
Last Page
301
Abstract
We examine the relative importance of observed and unobserved firm- and manager-specific heterogeneities in determining executive compensation incentives and firm policy, risk, and performance. First, we decompose executive incentives into time-variant and time-invariant firm and manager components. Manager fixed effects supply 73% (60%) of explained variation in delta (vega). Second, controlling for manager fixed effects alters parameter estimates and corresponding inference on observed firm and manager characteristics. Third, larger CEO delta (vega) fixed effects predict better firm performance (riskier corporate policies and higher firm risk). These results suggest that the delta (vega) fixed effect captures managerial ability (risk aversion).
Citation of this paper:
Coles, J., and Li, Z.F. 2020. Managerial Attributes, Incentives, and Performance. Review of Corporate Finance Studies 9(2): 256–301
