Abstract

http://ssrn.com/abstract=845844
 
 

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Do Entrenched Managers Pay Their Workers More?


Henrik Cronqvist


China Europe International Business School (CEIBS)

Fredrik Heyman


Research Institute of Industrial Economics (IFN)

Mattias Nilsson


University of Colorado at Boulder - Leeds School of Business

Helena Svaleryd


Uppsala University

Jonas Vlachos


Stockholm University - Department of Economics

November 20, 2007

EFA 2006 Zurich Meetings Paper
AFA 2007 Chicago Meetings Paper
Fisher College of Business Working Paper No. 2007-03-010
Charles A. Dice Center Working Paper No. 2007-7

Abstract:     
Analyzing a large panel that matches public firms with worker-level data, we find that managerial entrenchment affects workers' pay. CEOs with more control pay their workers more, but financial incentives through ownership of cash flow rights mitigate such behavior. These findings do not seem to be driven by productivity differences, and evidence around an exogenous shift in labor market relations suggests a causal interpretation of our findings. Entrenched CEOs pay more to employees (i) closer to the CEO in the corporate hierarchy, such as CFOs, division vice-presidents and other top-executives, (ii) geographically closer to the corporate headquarters, and (iii) associated with aggressive and conflict-inclined unions. The evidence is consistent with entrenched CEOs paying higher wages to enjoy non-pecuniary private benefits such as lower effort wage bargaining and improved social relations with certain employees. More generally, our results show that managerial ownership and corporate governance can play an important role for labor market outcomes such as employee compensation.

Number of Pages in PDF File: 45

Keywords: Corporate governance, agency problems, private benefits, matched employer-employee data, wages

JEL Classification: G32, G34, J31

working papers series





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Date posted: May 25, 2006 ; Last revised: September 11, 2008

Suggested Citation

Cronqvist, Henrik and Heyman, Fredrik and Nilsson, Mattias and Svaleryd, Helena and Vlachos, Jonas, Do Entrenched Managers Pay Their Workers More? (November 20, 2007). EFA 2006 Zurich Meetings Paper; AFA 2007 Chicago Meetings Paper; Fisher College of Business Working Paper No. 2007-03-010; Charles A. Dice Center Working Paper No. 2007-7. Available at SSRN: http://ssrn.com/abstract=845844 or http://dx.doi.org/10.2139/ssrn.845844

Contact Information

Henrik Cronqvist (Contact Author)
China Europe International Business School (CEIBS) ( email )
699 Hongfeng Road, Pudong
Shanghai, 201206
China
+86 21-2890-5653 (Phone)
HOME PAGE: http://sites.google.com/site/henrikcronqvist/
Fredrik Heyman
Research Institute of Industrial Economics (IFN) ( email )
Box 55665
Grevgatan 34, 2nd floor
Stockholm, SE-102 15
Sweden
HOME PAGE: http://www.ifn.se
Mattias Nilsson
University of Colorado at Boulder - Leeds School of Business ( email )
Campus Box 419
Boulder, CO 80309
United States
+1-303-492-2289 (Phone)
Helena Svaleryd
Uppsala University ( email )
P.O. Box 513
Uppsala, 75120
Sweden
Jonas Vlachos
Stockholm University - Department of Economics ( email )
Stockholm, 10691
Sweden
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