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Relative performance evaluation with business group affiliation as a source of common risk

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  • Choi, Yoon K.
  • Han, Seung Hun
  • Kwon, Yonghyun

Abstract

This study examines relative performance evaluation (RPE) for CEO compensation in business groups called “chaebols” in Korea. We find strong evidence of RPE when peers are member firms within the same business group, particularly when a firm has an established compensation committee or is run by a professional CEO (rather than a family CEO). This result is consistent with the argument that the affiliated firms within a business group may face significant common shocks affecting their performance. Therefore, aggregate group performance may be an excellent RPE benchmark for filtering out common risks from CEO compensation measurement.

Suggested Citation

  • Choi, Yoon K. & Han, Seung Hun & Kwon, Yonghyun, 2024. "Relative performance evaluation with business group affiliation as a source of common risk," Global Finance Journal, Elsevier, vol. 60(C).
    • Handle: RePEc:eee:glofin:v:60:y:2024:i:c:s1044028324000012
    DOI: 10.1016/j.gfj.2024.100929
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    More about this item

    Keywords

    Business group affiliation; Compensation committee; Family CEO; Relative performance evaluation;
    All these keywords.

    JEL classification:

    • G32 - Financial Economics - - Corporate Finance and Governance - - - Financing Policy; Financial Risk and Risk Management; Capital and Ownership Structure; Value of Firms; Goodwill
    • G34 - Financial Economics - - Corporate Finance and Governance - - - Mergers; Acquisitions; Restructuring; Corporate Governance
    • J33 - Labor and Demographic Economics - - Wages, Compensation, and Labor Costs - - - Compensation Packages; Payment Methods
    • J44 - Labor and Demographic Economics - - Particular Labor Markets - - - Professional Labor Markets and Occupations
    • M14 - Business Administration and Business Economics; Marketing; Accounting; Personnel Economics - - Business Administration - - - Corporate Culture; Diversity; Social Responsibility

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