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Positive externalities of CEO delta
Author(s) -
Feng Hongrui,
Jia Yuecheng
Publication year - 2019
Publication title -
european financial management
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 1.311
H-Index - 64
eISSN - 1468-036X
pISSN - 1354-7798
DOI - 10.1111/eufm.12182
Subject(s) - incentive , capitalization , externality , peer pressure , business , product market , monetary economics , delta , turnover , economics , industrial organization , microeconomics , management , psychology , social psychology , linguistics , philosophy , engineering , aerospace engineering
Increases in delta incentives are dramatic for a small group of firms (leader firms) but negligible for the majority. We show that leader firms have larger market capitalization and higher irreversibility, and are in industries with negative shocks. When leader firms experience substantial growth in delta incentives, industry peers experience positive abnormal returns and abnormal improvement in fundamentals despite no significant change in delta. Further, we provide evidence that abnormal returns are induced by peer CEOs’ extra efforts in response to the increasing competitive pressure caused by leader firms. To mitigate their competitive pressure and turnover threat, peer CEOs allocate their extra efforts to firms’ operating efficiency and product differentiation.