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Independent directors’ reputation incentives and executive pay tournaments

Aaron Afzali et al.

Review of Quantitative Finance and Accounting2026https://doi.org/10.1007/s11156-026-01507-8article
AJG 3ABDC B
Weight
0.50

What the paper says

We provide evidence of a positive association between independent directors’ reputation incentives and the magnitude of the CEO pay gap, defined as the difference in compensation between the CEO and lower-ranked executives. The CEO pay gap serves as a proxy for the strength of executive pay tournaments within the firm. Using a sample of S&P 1500 firms, we show that independent directors with stronger reputation incentives employ larger pay gaps to encourage executive risk-taking, thereby enhancing firm performance and protecting their own reputation in the labor market. This relationship holds for both short- and long-term pay gaps and is supported by propensity score matching and difference-in-differences analyses. Cross-sectional results indicate that the association is stronger in settings characterized by higher information asymmetry, lower institutional ownership, weaker product-market competition, and smaller firm size, consistent with reputation incentives substituting for weaker external monitoring. Overall, our findings highlight tournament-based compensation as a strategic governance mechanism and demonstrate that directors’ reputation incentives, particularly in opaque information environments, can help align incentives and improve firm outcomes.

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https://doi.org/https://doi.org/10.1007/s11156-026-01507-8

Or copy a formatted citation

@article{aaron2026,
  title        = {{Independent directors’ reputation incentives and executive pay tournaments}},
  author       = {Aaron Afzali et al.},
  journal      = {Review of Quantitative Finance and Accounting},
  year         = {2026},
  doi          = {https://doi.org/https://doi.org/10.1007/s11156-026-01507-8},
}

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Independent directors’ reputation incentives and executive pay tournaments

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Evidence weight

0.50

Balanced mode · F 0.40 / M 0.15 / V 0.05 / R 0.40

F · citation impact0.50 × 0.4 = 0.20
M · momentum0.50 × 0.15 = 0.07
V · venue signal0.50 × 0.05 = 0.03
R · text relevance †0.50 × 0.4 = 0.20

† Text relevance is estimated at 0.50 on the detail page — for your query’s actual relevance score, open this paper from a search result.