Managerial Attributes and Executive Compensation
John R. Graham
Duke University; National Bureau of Economic Research (NBER)
Wilfrid Laurier University - School of Business & Economics
McMaster University - Michael G. DeGroote School of Business
June 6, 2011
Review of Financial Studies, Forthcoming
AFA 2010 Atlanta Meetings Paper
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
Date posted: September 12, 2008 ; Last revised: June 9, 2011
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