CEO Compensation Contagion: Evidence from an Exogenous Shock
Frederick L. Bereskin
University of Delaware
David C. Cicero
University of Tennessee, Knoxville
August 3, 2012
Journal of Financial Economics (JFE), Forthcoming
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, G34Accepted Paper Series
Date posted: February 12, 2011 ; Last revised: October 9, 2012
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