Wang, T. C., Liu, C. W., and Chen, L. S. 2022. The Effect of Information Opacity on the Weighting of Performance Measures in the Compensation Contracts of CEOs: Evidence from U.S. Firms. NTU Management Review, 32 (3): 1-34. https://doi.org/10.6226/NTUMR.202212_32(3).0001
Tay-Chang Wang, Department of Accounting, and Center for Research in Econometric Theory and Applications, National Taiwan University
Chia-Wen Liu, Department of Accounting, and Center for Research in Econometric Theory and Applications, National Taiwan University
Liang-Shiuan Chen, Department of Accounting, National Taiwan University
Abstract
This study examines the effect of information opacity of accounting numbers and stock-related information on the weighting of accounting-based and stock-based performance measures in CEOs' compensation contracts. For stock-related information opacity, we find that the weighting of the accounting-based performance measure significantly increases and that the weighting of the stock based performance measure significantly decreases if the bid-ask spread of the stock increases. In addition, we find that the weighting of the accounting-based performance measure significantly decreases and that the weighting of the stock based performance measure significantly increases if the number of analysts of a corporation increases.For information opacity of accounting numbers, we find that the weighting of the accounting-based performance measure significantly decreases if the quality of the information of financial statements worsens. However, the weighting of the stock based performance measure does not increase significantly simultaneously. Lastly, we take industrial difference into account and find that different business models across industries do not result in significantly higher or lower weightings of performance measures.
Keywords
compensation contractsinformation opacityaccounting-based performance measuresstock-based performance measures