Target Difficulty, Firm Performance and Target Ratcheting

• Main Authors: Chun-Wei Lu, 呂俊緯
• Other Authors: 李艷榕
• Format: Others
• Language: zh-TW
• Published: 2018
• Online Access: http://ndltd.ncl.edu.tw/handle/fbhupp

碩士 === 國立臺灣大學 === 會計學研究所 === 106 === This study examines the relationship between the firms’ CEO performance target difficulty and firm performance, as well as the relationship between target ratcheting and firm performance. Prior literature about target difficulty mainly used survey for data collection. For empirical research, prior literature mainly used ex-post measurement when examining target difficulty. This study use ex-ante measurement to examine whether, after controlling for the attainability of performance target, the target difficulty is positively related to firm performance. The samples are from 2007 to 2016, and the performance targets are retrieved from Compensation Discussion and Analysis (CD&A) part of the proxy statement of form DEF 14A, required by SEC. This study uses return on assets and buy-and-hold stock return as proxies for firm performance. For the target difficulty, this study regresses EPS on firm size, capital structure and growth opportunities from the past 5 years to determine the target difficulty threshold for each company. Empirical results indicate that, after controlling for the attainability of performance target, target difficulty and return on assets are significantly positively related. Companies of CEOs with higher target difficulty have higher return on assets. However, there is no significant positive relationship between target difficulty and buy-and-hold stock return. In addition, this study tries to examine the relationship between target ratcheting, CEO’s performance over target and firm performance. This study does not find significant results in these issues. Overall, this study provides insights into setting or revising the performance targets for CEOs.