JOURNAL ARTICLE

Cash versus Share Payouts in Relative Performance Plans.

  • Published In: Accounting Review, 2024, v. 99, n. 6. P. 451 1 of 3

  • Database: Business Source Ultimate 2 of 3

  • Authored By: Timmermans, Oscar 3 of 3

Abstract

This study examines the risk taking properties associated with incentive plans that use relative performance evaluation, with a focus on the form of payout, whether in cash or shares. By analyzing determinants and consequences of payout form choice, I find that share-based plans offer risk-averse managers weaker incentives to pursue projects with idiosyncratic risk compared with cash plans. This occurs because share plans—unlike cash plans—expose managers to systematic performance trends, as payout values are linked to stock prices. Additionally, I document that the variation in risk taking incentives depends on expected relative performance and the strength of the incentives. Overall, this study's findings suggest that commonly used share-based relative performance plans might not always motivate managers to pursue innovative projects with high idiosyncratic risk when projects with systematic risk are available. Data Availability: All data are available from the sources identified in the text. JEL Classifications: G30; J33; J41; M12; M41. [ABSTRACT FROM AUTHOR]

Additional Information

  • Source:Accounting Review. 2024/11, Vol. 99, Issue 6, p451
  • Document Type:Article
  • Subject Area:Business and Management
  • Publication Date:2024
  • ISSN:0001-4826
  • DOI:10.2308/TAR-2022-0167
  • Accession Number:180624458
  • Copyright Statement:Copyright of Accounting Review is the property of American Accounting Association and its content may not be copied or emailed to multiple sites without the copyright holder's express written permission. Additionally, content may not be used with any artificial intelligence tools or machine learning technologies. However, users may print, download, or email articles for individual use. This abstract may be abridged. No warranty is given about the accuracy of the copy. Users should refer to the original published version of the material for the full abstract. (Copyright applies to all Abstracts.)

Looking to go deeper into this topic? Look for more articles on EBSCOhost.