The Effect of Relative Performance Evaluation on Firm Risk-Taking: The Role of Managers' Competitive Motivations in the Tournament Theory Framework

Articles in Press

Document Type : Research Paper

Authors

Department of Accounting, Isf.C., Islamic Azad University, Isfahan, Iran.

10.22103/jak.2026.26089.4236

Abstract

Objective: The relative performance evaluation of firms within an industry creates a tournament-like competitive structure that influences CEOs’ decisions regarding risk-taking. Firms that have achieved poor performance have a strong motivation to compensate and win in the next period. Accordingly, the objective of this research is to examine the effect of relative performance evaluation on firm risk-taking, considering the role of external and internal managerial competition incentives and proximity to the end of the performance evaluation period from the perspective of winning the tournament.
 
Method: The statistical sample includes 127 firms listed on the Tehran Stock Exchange, covering the period from 2014 to 2022. To test the hypotheses, a multiple regression model within the framework of panel data was utilized.
 
Results: The research results indicated that firms that performed worse than their industry peers in the previous period exhibit higher risk-taking in the current period. Furthermore, the results showed that in firms where external and internal managerial competition incentives are high, the effect of poor performance in the previous period on current-period risk-taking is amplified. In addition, the findings revealed that as the end of the evaluation period approaches, the effect of poor performance in the previous period on current-period risk-taking becomes less pronounced in firms where external and internal managerial competition incentives are high.
 
Conclusion: Firms that have performed relatively worse than their competitors during an intermediate period demonstrate higher risk-taking in the remainder of the evaluation period, and this effect is strengthened when the importance of achieving success in the competition is greater for the CEO.

Keywords

Main Subjects

References

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Journal of Accounting Knowledge

Articles in Press, Accepted Manuscript
Available Online from 18 May 2026

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  • Receive Date: 11 October 2025
  • Revise Date: 04 March 2026
  • Accept Date: 09 May 2026

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