Abstract
Reviews previous research on agency theory, the use of long‐term performance plans to align the interests of managers and shareholders, and the effect of these plans on firm performance. Uses data from a sample of 29 US companies adopting/changing long‐term performance plans and a matched control sample to test the impact of these plans on a firm’s share price volatility (beta), asset growth/volatility and leverage. Presents and discusses the results, which suggest that beta, leverage and asset return volatility are all increased. Concludes that the plans decrease managers’ risk aversion.
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