Rocking the Boat: How Relative Performance Evaluation Affects Corporate Risk Taking

Courtesy of Truc (Peter) Thuc Do, Huai Zhang, and Luo Zuo Relative Performance Evaluation (RPE) allows a firm to compensate its managers according to the firm’ performance relative to the performance of peer firms. A typical RPE contract has two distinct features. First, relative rather than absolute performance matters. Under an RPE contract, the CEO […]