Working Papers:

1. "Pay(out) for Performance? Evidence from Long-Term Incentive Plans" with Zhi Li and Rachel Peng. [SSRN Link]

Using hand-collected realized payout data for CEOs' long-term accounting-based incentive plans (LTAPs), we provide the first comprehensive evidence on the realized pay-performance relation and on the informational value of these payouts. 

The widespread adoption of performance-contingent compensation plans has widened the gap between executives' ex-ante reported pay and realized take-home pay, raising questions about whether these plans truly reward performance. We show that both payout likelihood and magnitude are positively associated with firm performance, and these relations are not moderated by earnings management, contract design, or corporate governance. Shareholders react positively when firms disclose payouts at or above target. Following such payouts, the likelihood of failing Say-on-Pay and CEO turnover both decline. Payout levels also predict whether firms continue LTAPs or revise performance metrics and horizons. Although LTAP payouts generally reflect performance, a subset of weakly governed firms make excessive, non-performance-based payouts, suggesting managerial rent-seeking. None of these insights can be inferred from plan target values. Collectively, our findings highlight the informational value of realized payouts. 


2. "Human Capital Metrics and CEO Pay" with Zhexu(Edward) Ai, M. Diane Burton, and Karen Wruck [SSRN Link]

Human capital management has long been a key part of a CEO's job, so why are firms now rushing to add HCM-based performance metrics to CEO pay? 


Using a hand-coded sample of over 45,000 CEO compensation performance plans from 1998 to 2023, we conduct a pioneering analysis of the use of human capital-based (HC) performance metrics in CEO pay. In our sample, HC plan adoption has grown from 4% of firms in 1998 to 57% in 2023, with the associated pay value rising from about 0.1 times salary to more than 1.8 times salary. Firms with larger workforces and greater human capital importance are more likely to adopt HC plans and grant higher pay values under these plans. Investors preferences also appear to have contributed to the waves of HC plan adoption. CEOs with HC plans based on diversity, equity, and inclusion (DEI) metrics, qualitative measures, multiple metric types, and more metrics receive significantly higher short-term incentive pay without delivering better financial performance. These patterns raise concerns about agency problems in firms that adopt HC metrics that are inherently difficult for shareholders to monitor. Overall, our findings challenge the common practice of lumping E, S, and G performance metrics together and highlight the need to examine each type of incentive metric separately. 


3. "Shrink to Greatness? Evidence from Accounting-return Based Compensation Plans" with Sam Piotrowski. [SSRN Link]

For a ratio (i.e., ROA) to improve, a firm can either increase the numerator (profits) or decrease the denominator (assets). Our evidence suggests that many firms choose the latter, although the reality is more nuanced. 


Accounting rates of return (ARRs), like ROA or ROIC, have become one of the most adopted performance metrics in executive compensation. Unlike level-based metrics, executives can improve ARRs by either boosting earnings or reducing assets/investment. Our study reveals that firms that tie CEO pay to ARRs achieve significantly better accounting rates of return by shrinking the denominator, e.g., trimming fixed assets and cutting investments. These actions, however, do not improve asset efficiency and are followed by weaker sales growth. Firms seem to weigh the effort required to cut assets against improving earnings, opting for shrinking strategies when costs are lower. 


4. "Culture and Wealth Creation: Evidence from Global Stock Markets" with Cheol Eun and Ernest Jang. [SSRN Link]

"If we learn anything from the history of economic development, it is that culture makes all the difference" (Landes, 1999, The Wealth and Poverty of Nations: Why Some Are So Rich and Some So Poor)

Using the method of Bessembinder (2018), we estimate stock market wealth creation around the world and show the importance of national culture in explaining wealth creation. The 88 stock markets in our sample create $76.6 trillion in wealth from 1973 to 2019, with the U.S. contributing the most (52.5%). Among industries, finance creates the most wealth (17.6%). We find that countries with more individualistic, less masculine, and less uncertainty avoidant cultures have comparative advantages in stock market wealth creation. We show that culture influences wealth creation through multiple channels, including innovation, governance, information, education (for females in particular), and sustainability. 


5. "CEO Interfirm Mobility and Firm Outcomes" with Qing Cao and Chip Ryan [SSRN Link]

Among the S&P 500 CEOs, 17% are stationary CEOs that have worked for only one firm in their entire career and 22% are mobile CEOs that have worked in five or more firms. 

Motived by the rising prominence of CEOs with a diverse career background, we introduce CEO interfirm mobility as an important CEO construct and examine its influences on CEO hiring decision and firm outcomes within the upper-echelons framework. Using data on the complete employment histories of S&P 1500 CEOs, we find that CEOs with high interfirm mobility match with firms in need of change. When matched to firms in need of their skills, CEOs with higher interfirm mobility improve operating performance, increase firm risk, and alter scope of operations. We use novel instruments to control for potential endogeneity. The influence of CEO interfirm mobility is economically significant and cannot be explained by the CEO’s age, ability, inside/outside status, functional experience, or education background.