Abstract

http://ssrn.com/abstract=984376
 
 

References (24)



 
 

Citations (96)



 


 



Managerial Capital and the Market for CEOs


Kevin J. Murphy


University of Southern California - Marshall School of Business; University of Southern California - Department of Economics; USC Gould School of Law

Jan Zabojnik


Queen's University - Department of Economics

April 2007


Abstract:     
This paper reconciles three pronounced trends in U.S. corporate governance: the increase in pay levels for top executives, the increasing prevalence of appointing CEOs through external hiring rather than internal promotions, and the increased prevalence of hiring outside CEOs with prior experience as CEOs. We propose that these trends reflect a shift in the relative importance of "managerial ability" (CEO skills transferable across companies) and "firm-specific human capital" (valuable only within the organization). We show that if the supply of workers in the corporate sector is relatively elastic, an increase in the relative importance of managerial ability leads to fewer promotions, more external hires, and an increase in equilibrium average wages for CEOs. We test our model using CEO pay and turnover data from 1970 to 2000. We show that CEO compensation is higher for CEOs hired from outside their firm, and for CEOs in industries where outside hiring is prevalent.

Number of Pages in PDF File: 50

Keywords: Executive Compensation, Executive Turnover, Human Capital, Matching, Firm-specific capial, managerial labor market

JEL Classification: J41, J44, G3, J31, J33

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Date posted: May 8, 2007  

Suggested Citation

Murphy, Kevin J. and Zabojnik, Jan, Managerial Capital and the Market for CEOs (April 2007). Available at SSRN: http://ssrn.com/abstract=984376 or http://dx.doi.org/10.2139/ssrn.984376

Contact Information

Kevin J. Murphy (Contact Author)
University of Southern California - Marshall School of Business ( email )
BRI 308, MC 0804
Los Angeles, CA 90089-0804
United States
213-740-6553 (Phone)
213-740-6650 (Fax)

University of Southern California - Department of Economics
3620 South Vermont Ave. Kaprielian (KAP) Hall, 300
Los Angeles, CA 90089
United States
USC Gould School of Law
699 Exposition Boulevard
Los Angeles, CA 90089
United States

Jan Zabojnik
Queen's University (Canada) - Department of Economics ( email )
94 University Avenue
Kingston, Ontario K7L 3N6
Canada
613-533-2275 (Phone)
613-533-6668 (Fax)
HOME PAGE: http://qed.econ.queensu.ca/faculty/zabojnik/Page/
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