Knowledge, Compensation, and Firm Value: An Empirical Analysis of Firm Communication
University of Michigan at Ann Arbor - Stephen M. Ross School of Business
University of Chicago - Booth School of Business
University of Michigan - Stephen M. Ross School of Business
Madhav V. Rajan
Stanford Graduate School of Business
December 12, 2012
Rock Center for Corporate Governance at Stanford University Working Paper No. 83
Chicago Booth Research Paper No. 12-03
Modern theories of the firm suggest that identifying the location of knowledge within an organization is the key to understanding the organization’s decision-making processes. We hypothesize that external communication patterns reveal the underlying knowledge dispersion within the management team. Using a large database of firm conference call transcripts, we find evidence to support our hypothesis. CEOs speak less in settings where they are unlikely to be fully informed and these CEOs also receive a smaller proportion of total management team compensation. Firms that do not adhere to the above communication-pay pattern have a lower industry-adjusted Tobin’s Q. These findings are consistent with modern theories of the firm.
Number of Pages in PDF File: 57
Keywords: knowledge, communication, firm value, compensation, authority, organization
JEL Classification: D22, D70, D80, L23, M12working papers series
Date posted: October 1, 2009 ; Last revised: February 21, 2013
© 2013 Social Science Electronic Publishing, Inc. All Rights Reserved.
This page was processed by apollo1 in 0.453 seconds