Relative performance evaluation and peer-performance summarization errors

Relative performance evaluation and peer-performance summarization errors In tests of the relative performance evaluation (RPE) hypothesis, empiricists rarely aggregate peer performance in the same way as a firm’s board of directors. Framed as a standard errors-in-variables problem, a commonly held view is that such aggregation errors attenuate the regression coefficient on systematic firm performance towards zero, which creates a bias in favor of the strong-form RPE hypothesis. In contrast, we analytically demonstrate that aggregation differences generate more complicated summarization errors, which create a bias against finding support for strong-form RPE (potentially inducing a Type-II error). Using simulation methods, we demonstrate the sensitivity of empirical inferences to the bias by showing how an empiricist can conclude erroneously that boards, on average, do not apply RPE, simply by selecting more, fewer, or different peers than the board does. We also show that when the board does not apply RPE, empiricists will not find support for RPE (that is, precluding a Type-I error). Review of Accounting Studies Springer Journals

Relative performance evaluation and peer-performance summarization errors

Loading next page...
Springer US
Copyright © 2012 by Springer Science+Business Media, LLC
Economics / Management Science; Accounting/Auditing; Finance/Investment/Banking; Public Finance & Economics
Publisher site
See Article on Publisher Site


  • Peer firms in relative performance evaluation
    Albuquerque, A
  • Tests for relative performance evaluation based on assumptions derived from proxy statement disclosures
    Bannister, J; Newman, H; Weintrop, J
  • Does the use of peer groups contribute to higher pay and less efficient compensation?
    Bizjak, J; Lemmon, M; Naveen, L
  • Empirical research on CEO turnover and firm-performance: A discussion
    Brickley, JA
  • Relative performance evaluation in CEO pay contracts: Evidence from the commercial banking industry
    Crawford, AJ
  • The effect of competition on CEO turnover
    DeFond, ML; Park, CW

You’re reading a free preview. Subscribe to read the entire article.

DeepDyve is your
personal research library

It’s your single place to instantly
discover and read the research
that matters to you.

Enjoy affordable access to
over 12 million articles from more than
10,000 peer-reviewed journals.

All for just $49/month

Explore the DeepDyve Library

Unlimited reading

Read as many articles as you need. Full articles with original layout, charts and figures. Read online, from anywhere.

Stay up to date

Keep up with your field with Personalized Recommendations and Follow Journals to get automatic updates.

Organize your research

It’s easy to organize your research with our built-in tools.

Your journals are on DeepDyve

Read from thousands of the leading scholarly journals from SpringerNature, Elsevier, Wiley-Blackwell, Oxford University Press and more.

All the latest content is available, no embargo periods.

See the journals in your area

Monthly Plan

  • Read unlimited articles
  • Personalized recommendations
  • No expiration
  • Print 20 pages per month
  • 20% off on PDF purchases
  • Organize your research
  • Get updates on your journals and topic searches


Start Free Trial

14-day Free Trial

Best Deal — 39% off

Annual Plan

  • All the features of the Professional Plan, but for 39% off!
  • Billed annually
  • No expiration
  • For the normal price of 10 articles elsewhere, you get one full year of unlimited access to articles.



billed annually
Start Free Trial

14-day Free Trial