Three essays in corporate finance

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Authors
Mani, Suresh Babu
Issue Date
2015-05
Type
Electronic thesis
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Language
ENG
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Management
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Abstract
My first essay examines the performance impact of relative quality of firms' peer companies selected for determining executive compensation. I identify a firm's relative peer quality by its relative ranking among peers based on their prior profitability. I find that firms with higher relative peer quality tend to earn superior risk-adjusted stock returns and experience higher profitability growth compared to firms that have lower relative peer quality. These results cannot be fully explained by CEO's power, compensation, or intrinsic talent, neither by possible earnings management. Learning among peers and the increased incentive induced by the peer-based tournament, however, might contribute to relative peer quality's positive performance effect. Overall, this essay shows that relative quality of executive labor market peers can have a significant impact on firm performance and provides valuable insights on how peer companies can be used in designing more effective incentive contracts.
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May 2015
School of Management
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Rensselaer Polytechnic Institute, Troy, NY
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