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CEO Compensation Contagion: Evidence from an Exogenous ShockFrederick L. BereskinUniversity of Delaware David C. CiceroUniversity of Tennessee, Knoxville August 3, 2012 Journal of Financial Economics (JFE), Forthcoming Abstract: We examine how Chief Executive Officer (CEO) compensation increased at a subset of firms in response to a governance shock that affected compensation levels at other firms in the economy. We first show that Delaware-incorporated firms with staggered boards and no outside blockholders increased CEO compensation following the mid-1990s Delaware legal cases that strengthened their ability to resist hostile takeovers. Consistent with the Gabaix and Landier (2008) contagion hypothesis, non-Delaware firms subsequently increased CEO compensation when the rulings affected a substantial number of firms in their industries. We further show how these legal developments contributed significantly to the rapid increase in CEO compensation in the late 1990s.
Number of Pages in PDF File: 55 Keywords: Compensation, Delaware, Staggered Board, Poision Pill, Corporate Law, Contagion, Peer Group Analysis JEL Classification: G30, G34 Accepted Paper SeriesDate posted: February 12, 2011 ; Last revised: October 9, 2012Suggested Citation |
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