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Managerial Attributes and Executive CompensationJohn R. GrahamDuke University - Fuqua School of Business; National Bureau of Economic Research (NBER) Si LiWilfrid Laurier University - School of Business & Economics Jiaping QiuMcMaster University - Michael G. DeGroote School of Business June 6, 2011 Review of Financial Studies, Forthcoming AFA 2010 Atlanta Meetings Paper Abstract: We study the role of firm- and manager-specific heterogeneities in executive compensation. We decompose the variation in executive compensation and find that time invariant firm and especially manager fixed effects explain a majority of the variation in executive pay. We then show that in many settings, it is important to include fixed effects to mitigate potential omitted variable bias. Furthermore, we find that compensation fixed effects are significantly correlated with management styles (i.e., manager fixed effects in corporate policies). Finally, the method used in the paper has a number of potential applications in financial economics.
Number of Pages in PDF File: 61 Keywords: Executive compensation, CEO pay, latent managerial ability, human capital, fixed effects, manager fixed effects JEL Classification: G3, G32, J24, J31, J33, C23 Accepted Paper SeriesDate posted: September 12, 2008 ; Last revised: June 9, 2011Suggested CitationContact Information
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