The Effect of Local Tournament Incentives on Firms' Performance, Risk-Taking Decisions, and Financial Reporting Decisions

This study documents the existence of local employment preferences for corporate executives and examines how the compensation of executives' local peers affects their own performance, risk-taking decisions, and financial reporting decisions. We find that external hires of new CEOs (CFOs) are five (eight) times more likely to be from local firms than non-local firms. We also find that local tournament incentives—as proxied by the pay gap between...