Preaching water but drinking wine? Relative performance evaluation in international banking

Ilić, Dragan; Pisarov, Sonja; Schmidt, Peter S.

doi:10.1186/s41937-019-0032-8

Swiss Journal of Economics and Statistics

Table 11 Regressions estimating the sensitivity of CEO compensation to RPE without the years 2007 and 2008

From: Preaching water but drinking wine? Relative performance evaluation in international banking

	Panel A: weak-form RPE tests		Panel B: weak-form RPE tests		Panel C: strong-form RPE tests
	– Full sample		– Disclosure Subsample		– Disclosure subsample
Independent variables	Industry peer group	Industry/size peer group	Industry peer group	Industry/size peer group	Industry/size peer group
Intercept	0.25	0.28	− 2.36	− 1.93	− 6.47^*
	(0.89)	(0.88)	(0.48)	(0.55)	(0.06)
Firm stock return	0.58^***	0.61^***	0.63^**	0.74^***
	(0.00) [2.42]	(0.00) [2.50]	(0.01) [2.91]	(0.00) [2.99]
Peer return (industry)	− 0.30		− 0.87^**
	(0.14) [2.63]		(0.01) [3.14]
Peer return (industry/size)		− 0.35^*		− 1.05^***
		(0.05) [2.45]		(0.00) [2.81]
Unsystematic firm perf					0.74^***
					(0.00) [1.79]
Systematic firm perf					− 0.51^*
					(0.06) [1.96]
Firm size (sales)	0.37^***	0.37^***	0.73^***	0.74^***	0.74^***
	(0.00) [3.98]	(0.00) [3.98]	(0.00) [4.85]	(0.00) [4.79]	(0.00) [4.79]
Growth options	0.46	0.43	1.85	1.41	1.41
	(0.79) [4.89]	(0.80) [4.89]	(0.57) [15.87]	(0.65) [15.86]	(0.65) [15.86]
Year dummies	Yes	Yes	Yes	Yes	Yes
Industry dummies	Yes	Yes	Yes	Yes	Yes
Country dummies	Yes	Yes	Yes	Yes	Yes
Adjusted R²	79.30%	79.42%	67.48%	69.12%	69.12%
Number of observations	267	267	128	128	128

Note: Panels A and B show OLS regression results for the equation Comp_it=α₀+α₁·FirmPerf_it+α₂·PeerPerf_it+α₃·C_it+ε_it. The first and third columns show the results from regressing log of total CEO compensation on stock return, peer performance composed of the firms within the same industry, and control variables. The second and fourth columns document regression results based on the industry/size quartiles peer group approach by Albuquerque (2009). Panel A shows the results for the full sample, and panel B reports the results for the disclosure subsample. Panel C documents OLS regression results for the equation Comp_it=δ₀+δ₁·UnsysFirmPerformance_it+δ₂·SystFirmPerformance_it+δ₃·C_it+e_it on the subsample of disclosing banks. We regress logarithm of CEO compensation on the unsystematic firm performance, systematic firm performance, and control variables for 128 firm-year observations over the time span 2004–2006 and 2009–2013. We use industry/size peer group specification in order to construct a systematic performance variable. All regressions include year, industry, and country dummies. For more details on systematic and unsystematic variable construction, see the “Empirical model” section. Peer groups are constructed for seven different regions. Significance levels are two-sided and denoted as follows: 1% (∗∗∗), 5% (∗∗), and 10% (∗). The corresponding p values are reported in parentheses below each coefficient estimate. Variance inflation factors are reported in squared brackets

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