Knowledge, Compensation, and Firm Value: An Empirical Analysis of Firm Communication
Shanghai Advanced Institute of Finance, Shanghai Jiaotong University
University of Chicago - Booth School of Business
University of Michigan, Stephen M. Ross School of Business
Madhav V. Rajan
Stanford Graduate School of Business
May 1, 2014
Journal of Accounting and Economics, Volume 58, Issue 1, August 2014, Pages 96–116
Chicago Booth Research Paper No. 12-03
Rock Center for Corporate Governance at Stanford University Working Paper No. 83
Knowledge is central to managing an organization, but its presence in employees is difficult to measure directly. We hypothesize that external communication patterns reveal the location of knowledge within the management team. Using a large database of firm conference call transcripts, we find that CEOs speak less in settings where they are likely to be relatively less knowledgeable. CEOs who speak more are also paid more, and firms whose CEO pay is not commensurate with CEO speaking have a lower industry-adjusted Tobin’s Q. Communication thus appears to reveal knowledge.
Keywords: knowledge, communication, firm value, compensation, authority, organization
JEL Classification: D22, D70, D80, L23, M12
Date posted: November 24, 2014 ; Last revised: September 18, 2015
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