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The effectiveness of relative performance evaluation (RPE) depends on a firm's ability to identify peers subject to similar exogenous shocks and with similar abilities to respond to such shocks. We consider whether firms routinely rely on firms sharing a life cycle stage in RPE implementation. Life cycle captures similarities in firm economics and firms within a life cycle stage are homogeneous along a number of dimensions relevant for RPE. Using explicit peer firm disclosures and a peer selection model, we show that firms routinely select life cycle peers. Further, using both strong- and weak- form RPE tests, we find that life cycle peers capture firm use of RPE and are incremental to previously identified peer groups. We also provide evidence that firms' peer group composition differs with characteristics of the firm and its industry. Overall, we document peer group selection evolves with the changing nature of the firm.

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This page is a summary of: Implementing Relative Performance Evaluation: The Role of Life Cycle Peers, Journal of Management Accounting Research, October 2019, American Accounting Association,
DOI: 10.2308/jmar-52580.
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