We investigate simultaneously the impact of promotion-based tournament incentives for VPs and equity-based (alignment) incentives for VPs and the chief executive officer (CEO) on firm performance. We find that tournament incentives, as measured by the pay differential between the CEO and VPs, relate positively to firm performance. The relation is more positive when the CEO nears retirement and less positive when the firm has a new CEO, and weakens further when the new CEO is an outsider. Our analysis is robust to corrections for endogeneity of all our incentive measures and to several alternative measures of tournament incentives and firm performance.

We investigate simultaneously the impact of promotion‐based tournament incentives for VPs and equity‐based (alignment) incentives for VPs and the chief executive officer (CEO) on firm performance. We find that tournament incentives, as measured by the pay differential between the CEO and VPs, relate positively to firm performance. The relation is more positive when the CEO nears retirement and less positive when the firm has a new CEO, and weakens further when the new CEO is an outsider. Our analysis is robust to corrections for endogeneity of all our incentive measures and to several alternative measures of tournament incentives and firm performance.

This study provides insights into the forces and constraints that shape analyst research coverage along country and sector dimensions and the impact of the structure of an analyst's portfolio on forecast accuracy. We find that analyst specialization by country and sector is sensitive to the extent to which firms within a country or sector and firms across country‐sectors are exposed to common economic forces, the potential for revenue generation, and broker culture. Our tests indicate that existing research on the relation between analyst portfolio structure and forecast accuracy may suffer from an endogeneity bias. We use our analysis of analyst specialization to develop controls for this bias. Once we employ these controls, we find that country diversification is associated with superior forecast accuracy. However, the relation between sector diversification and forecast accuracy is context‐specific. Specifically, sector diversification enhances forecast accuracy in an international context, while it detracts from forecast accuracy in a domestic U.S. context.