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1. A trade-off between non-fundamental risk and incentives............................................................................ 1

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A trade-off between non-fundamental risk and incentives

Author: Fung, Michael K Publication info: Review of Quantitative Finance and Accounting 41.1 (Jul 2013): 29-51. ProQuest document link Abstract: This study conjectures that CEOs are rewarded more heavily for fundamental than for nonfundamental performance, and that the impact of non-fundamental risks is more negative than that of fundamental risks on pay-performance sensitivity. While the first conjecture stems from the controllability principle, the second conjecture is attributable to the interplay between the risk-incentive trade-off and delegation of responsibility to the agent. This study devised measures for fundamental and non-fundamental performance using an ARIMA-based unobserved-component approach. The two conjectures are strongly supported by this study's findings over a wide range of empirical specifications, indicating that the optimal level of pay-performance sensitivity depends not only on the degree, but also on the nature, of performance uncertainty.[PUBLICATION ABSTRACT] Publication title: Review of Quantitative Finance and Accounting Volume: 41 Issue: 1 Pages: 29-51 Publication year: 2013 Publication date: Jul 2013 Year: 2013 Publisher: Springer Science & Business Media Place of publication: Boston Country of publication: Netherlands Publication subject: Business And Economics--Accounting, Business And Economics--Banking And Finance ISSN: 0924865X Source type: Scholarly Journals Language of publication: English Document type: Feature DOI: http://dx.doi.org/10.1007/s11156-012-0299-7 ProQuest document ID: 1370219182 Document URL: http://search.proquest.com/docview/1370219182?accountid=44945 Copyright: Springer Science+Business Media New York 2013 Last updated: 2013-06-27

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