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Full-Text Articles in Finance and Financial Management
Choosing The Precision Of Performance Metrics, Alan D. Crane, Andrew Koch, Chi Shen Wei
Choosing The Precision Of Performance Metrics, Alan D. Crane, Andrew Koch, Chi Shen Wei
Research Collection Lee Kong Chian School Of Business
There is a standard trade-off in contracts between the provision of incentives and insurance. We hypothesize that this trade-off influences the precision with which firm performance is measured. We find that firm outcomes are measured less precisely when chance plays a large role in these outcomes. Further, this precision is determined through the choice of shares outstanding. This has several novel implications. Nominal stock prices can remain constant over time, and firms with unpredictable cash flows should have more shares and lower stock price levels, all else equal. We find evidence consistent with these implications.
The Propensity To Split And Ceo Compensation, Erik Devos, William B. Elliott, Richard S. Warr
The Propensity To Split And Ceo Compensation, Erik Devos, William B. Elliott, Richard S. Warr
2018 Faculty Bibliography
We analyze the relation between the delta and vega of a chief executive officer’s (CEO) compensation and the propensity of the firm to engage in a split. Controlling for other well-known factors, we find that CEOs with compensation that has higher levels of delta are more likely to split their shares. Furthermore, the choice of split factor is inversely related to delta. Our results are economically significant: for the average (median) firm in our sample, a stock split results in a CEO wealth gain of $4.9 million ($84,000).