Accounting Comparability and Relative Performance Evaluation:Evidences from Equity-based Incentives
This paper studies the impact of accounting comparability on the selection of performance evaluation methods in equity-based incentives.China Securities Regulatory Commission requires that listed companies implementing equity incentives must disclose the exercise conditions,including performance indicators and evaluation methods,whereby explicit data on whether companies use relative performance evaluation can be obtained.Based on the unique data,this study finds that:when firms have more comparable accounting information with other firms in their peer group,their equity incentives are more likely to use relative performance evaluation;and the use of relative performance evaluation in equity incentives is more effective in promoting corporate innovation when accounting comparability is higher.Further research also shows that when the internal governance and external oversight are more stringent,the positive effect of accounting comparability on the use of relative performance evaluation is more significant.These findings suggest that accounting comparability can improve the effectiveness of equity incentives.
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