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
March 16, 2010
AFA 2011 Denver Meetings Paper
An efficient managerial labor market should compensate executives according to their contribution to shareholder value. We provide novel empirical evidence about the relationship between executive pay and managerial contribution to value by exploiting the exogenous variation resulting from stock price reactions to sudden deaths. We find, first, that the managerial labor market is characterized by positive sorting between managers’ contributions to value and their pay. We find, second, that executives appear, on average, to retain about 80% of the value they create. Overall, our results are informative about the workings of the managerial labor market.
Number of Pages in PDF File: 47
Keywords: Executive Compensation, Managerial Ability, Sudden Death, Corporate Governance, Value of Top Executive
JEL Classification: G3, G30working papers series
Date posted: March 16, 2010
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