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The Impact of Risk and Monitoring on CEO CompensationAna M. AlbuquerqueBoston University School of Management George PapadakisBoston University Peter D. WysockiUniversity of Miami - School of Business Administration August 20, 2010 AAA 2011 Management Accounting Section (MAS) Meeting Paper Abstract: This paper uses a novel empirical setting to explore the association between a firm’s operational risk, managerial monitoring costs, and how managers are compensated. We investigate a sample of supplier firms that rely on a few large customers for the bulk of their revenues. We predict that supplier firms with higher customer concentration face both higher exogenous idiosyncratic risk and lower monitoring costs and, as a result, will rely less on equity-based managerial incentive compensation contracts. Our empirical results support this prediction.
Number of Pages in PDF File: 49 Keywords: CEO, Compensation, Customers, Incentives, Monitoring, Risk, Suppliers JEL Classification: G30, D81, M40 working papers seriesDate posted: August 22, 2010Suggested CitationContact Information
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