Relative Performance Evaluation, Sabotage, and Disclosure

51 Pages Posted: 5 Oct 2021 Last revised: 11 Nov 2021

See all articles by Matthew J. Bloomfield

Matthew J. Bloomfield

The Wharton School of the University of Pennsylvania

Mirko Stanislav Heinle

University of Pennsylvania - Accounting Department

Oscar Timmermans

London School of Economics & Political Science (LSE)

Date Written: November 10, 2021

Abstract

Many firms use relative stock performance to evaluate and incentivize their CEOs. We provide evidence that these firms routinely disclose information that harms peers’ stock prices. Consistent with deliberate sabotage, peer-harming disclosures appear to be aimed at the peers whose stock price depressions are more likely to benefit the CEO, especially towards the end of a fiscal year. These patterns do not appear to be the result of passive information spillovers. Instead, firms appear to alter the information content of their disclosures, making their voluntary disclosures more informative about targeted peers, and less informative about themselves. The negative pricing impacts of peer-harming disclosures do not reverse, suggesting that these disclosures contain legitimate information content regarding peers’ prospects. Collectively, our findings provide the first clear evidence that relative performance evaluation in CEO pay plans leads to inter-firm sabotage—a notion which had been deemed “unlikely” by prior literature.

Keywords: Relative Performance Evaluation, Sabotage, Voluntary Disclosure, Stock Returns

JEL Classification: G12, G14, J33, M41

Suggested Citation

Bloomfield, Matthew J. and Heinle, Mirko Stanislav and Timmermans, Oscar, Relative Performance Evaluation, Sabotage, and Disclosure (November 10, 2021). Available at SSRN: https://ssrn.com/abstract=3936860 or http://dx.doi.org/10.2139/ssrn.3936860

Matthew J. Bloomfield (Contact Author)

The Wharton School of the University of Pennsylvania ( email )

1325 Steinberg-Dietrich Hall
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Philadelphia, PA PA 19103-1724
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6073513042 (Phone)
6073513042 (Fax)

Mirko Stanislav Heinle

University of Pennsylvania - Accounting Department ( email )

3641 Locust Walk
Philadelphia, PA 19104-6365
United States

Oscar Timmermans

London School of Economics & Political Science (LSE) ( email )

Houghton Street
London, WC2A 2AE
United Kingdom

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