Abstract

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What Death Can Tell: Are Executives Paid for Their Contributions to Firm Value?


Bang Dang Nguyen


University of Cambridge - Judge Business School

Kasper Meisner Nielsen


Hong Kong University of Science & Technology - Department of Finance

May 2014

Forthcoming in Management Science

Abstract:     
Using stock price reactions to sudden deaths of top executives as a measure of expected contribution to shareholder value, we examine the relationship between executive pay and managerial contribution to shareholder value. We find, first, that the managerial labor market is characterized by positive sorting: managers with high perceived contributions to shareholder value obtain higher pay. The executive pay-contribution relationship is stronger for professional executives and for executives with high compensation. We estimate, second, that an average top executive (CEO) appears to retain 71% (65%) of the marginal rent from the firm-manager relationship. We examine, third, how the executive pay-contribution relationship varies with individual, firm, and industry characteristics. Overall, our results are informative for the ongoing discussion about the level of executive compensation.

Number of Pages in PDF File: 42

Keywords: Executive Compensation, Managerial Ability, Sudden Death, Corporate Governance, Value of Top Executive

JEL Classification: G3, G30

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Date posted: March 16, 2010 ; Last revised: May 23, 2014

Suggested Citation

Nguyen, Bang Dang and Nielsen, Kasper Meisner, What Death Can Tell: Are Executives Paid for Their Contributions to Firm Value? (May 2014). Forthcoming in Management Science. Available at SSRN: http://ssrn.com/abstract=1572216 or http://dx.doi.org/10.2139/ssrn.1572216

Contact Information

Bang Dang Nguyen (Contact Author)
University of Cambridge - Judge Business School ( email )
Trumpington Street
Cambridge, CB2 1AG
United Kingdom
+44 122 376 0470 (Phone)
+44 1223 339701 (Fax)
HOME PAGE: http://www.jbs.cam.ac.uk/research/faculty/nguyenbd.html
Kasper Meisner Nielsen
Hong Kong University of Science & Technology - Department of Finance ( email )
Clear Water Bay, Kowloon
Hong Kong
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