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Knowledge, Compensation, and Firm Value: An Empirical Analysis of Firm CommunicationFeng LiUniversity of Michigan at Ann Arbor - Stephen M. Ross School of Business Michael MinnisUniversity of Chicago - Booth School of Business Venky NagarUniversity of Michigan - Stephen M. Ross School of Business Madhav V. RajanStanford 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 Abstract: 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, M12 working papers seriesDate posted: October 1, 2009 ; Last revised: February 21, 2013Suggested CitationContact Information
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