Compensation Peer Effect and Strategic Cost Management

This study examines the association between the incentive effects of peer selection and enhances efficient strategic cost management with future value. We find that firms with strong peers have the discretion to increase firm future value by spurring strategic cost return. To investigate the peer effect, we use the peer quality index (PQI) to capture the compensation-peer disclosure information. Using alternate model specifications, we consistently find that strategic cost management with future value is positively associated with PQI. Based on these findings, we conclude that peer-induced incentive effects from high-paid peers pursue greater efficient investments, leading to greater future value to compete if any, peer selection issues. Finally, the study outlines possible avenues that scholars can pursue to further examine the productive role of peer effects in strategic cost management with firm value.