Theme：Target Difficulty and Corporate Risk Taking
Speaker：Wei Zhu, Assistant Professor of Accountancy, University of Illinois at Urbana-Champaign
Address：Room 1008, Mingde Business Building
Title：Target Difficulty and Corporate Risk Taking
Speaker ：Wei Zhu, Assistant Professor of Accountancy, University of Illinois at Urbana-Champaign
Time：10:00-11:30, Jul. 12, 2019 (Friday)
Venue：Room 1008, Mingde Business Building
This study empirically examines the relation between the difficulty level of CEOs’ accounting performance targets and corporate risk taking. Using recently available data on performance targets in CEOs’ compensation plans in 4,810 firm-year observations, we find that easier accounting performance targets are associated with greater corporate risk taking. Our results are robust to alternative measures of target difficulty and alternative measures of risk taking. Further analyses reveal that easier accounting performance targets direct managers’ attention away from short-term profitability and towards long-term risky investment. We also find evidence suggesting that easing accounting performance targets to induce risk taking seems to be an intentional decision by the board of directors to increase firm value. We contribute to the target setting literature and executive compensation literature by providing large-scale archival evidence on the relation between target difficulty and corporate risk taking.
Dr Wei Zhu is an Assistant Professor of Accountancy in Gies College of Business at University of Illinois at Urbana-Champaign. He received his Ph.D. in accounting from Yale University and M.A. and B.S. in accounting from Guanghua School of Management at Peking University. His research focuses on 1) determinants and consequences of financial reporting and auditing quality; 2) effects of market structures on pricing of accounting information, corporate governance, and managerial learning; and 3) executive compensation practices including performance target setting. His research has been published in the Review of Accounting Studies. He also serves as ad hoc reviewers for top accounting journals including the Accounting Review. Prof. Zhu teaches financial accounting.
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