The Cross-Section of Stock Returns and Incentive Pay

• DOI: 10.2139/ssrn.1572085
• Publication Date: 2012-01-04T23:43:49Z
• Authors: Michael J. Cooper; Huseyin Gulen; Raghavendra Rau
• Keywords: Stock (firearms); Section (typography)

Measures of Chief Executive Officer (CEO) excess compensation are negatively related to future firm returns and operating performance. The effect is stronger for more overconfident CEOs at firms with weaker corporate governance. Overconfident receiving high pay undertake activities such as overinvestment value-destroying mergers acquisitions that lead shareholder wealth losses.