CEO bonus compensation: the effects of missing analysts’ revenue forecasts

We investigate the incremental contract relevance of analysts’ revenue forecasts while controlling for earnings forecasts and find CEOs receive smaller bonuses when missing analysts’ annual and quarterly revenue expectations. Our results support the link between the value relevance of the revenue pe...

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Bibliographic Details
Published in:Review of quantitative finance and accounting 2013-07, Vol.41 (1), p.149-170
Main Authors: Edmonds, Christopher T., Leece, Ryan D., Maher, John J.
Format: Article
Language:English
Subjects:
Accounting/Auditing
Bonuses
Chief executive officers
Compensation
Corporate Finance
Earnings
Econometrics
Economic forecasts
Economics and Finance
Executive compensation
Finance
Hypotheses
Incentives
Information systems
Operations Research/Decision Theory
Original Research
Stockholders
Tariff revenues
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Summary:We investigate the incremental contract relevance of analysts’ revenue forecasts while controlling for earnings forecasts and find CEOs receive smaller bonuses when missing analysts’ annual and quarterly revenue expectations. Our results support the link between the value relevance of the revenue performance measure and the contract relevance of that measure. Further, we find revenue forecasts to be more contract relevant for CEOs of firms with high growth expectations, consistent with Rees and Sivaramakrishnan’s Contemp Acc Res 24(1):259–290, ( 2007 ) findings that growth firms receive a larger market penalty for missing revenue targets. Overall, our findings provide empirical support for the conjecture that compensation committees rely on information consistent with that conveyed in analysts’ revenue forecasts when contracting with management.
ISSN:0924-865X
1573-7179
DOI:10.1007/s11156-012-0305-0