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Managerial Attributes and Executive Compensation

Review of Financial Studies, Forthcoming

AFA 2010 Atlanta Meetings Paper

61 Pages Posted: 12 Sep 2008 Last revised: 9 Jun 2011

John R. Graham

Duke University; National Bureau of Economic Research (NBER)

Si Li

Wilfrid Laurier University - School of Business & Economics

Jiaping Qiu

McMaster University - Michael G. DeGroote School of Business

Multiple version iconThere are 2 versions of this paper

Date Written: June 6, 2011

Abstract

We study the role of firm- and manager-specific heterogeneities in executive compensation. We decompose the variation in executive compensation and find that time invariant firm and especially manager fixed effects explain a majority of the variation in executive pay. We then show that in many settings, it is important to include fixed effects to mitigate potential omitted variable bias. Furthermore, we find that compensation fixed effects are significantly correlated with management styles (i.e., manager fixed effects in corporate policies). Finally, the method used in the paper has a number of potential applications in financial economics.

Keywords: Executive compensation, CEO pay, latent managerial ability, human capital, fixed effects, manager fixed effects

JEL Classification: G3, G32, J24, J31, J33, C23

Suggested Citation

Graham, John R. and Li, Si and Qiu, Jiaping, Managerial Attributes and Executive Compensation (June 6, 2011). Review of Financial Studies, Forthcoming; AFA 2010 Atlanta Meetings Paper. Available at SSRN: https://ssrn.com/abstract=1266680

John Robert Graham (Contact Author)

Duke University ( email )

Box 90120
Durham, NC 27708-0120
United States
919-660-7857 (Phone)
919-660-8030 (Fax)

National Bureau of Economic Research (NBER)

1050 Massachusetts Avenue
Cambridge, MA 02138
United States

Si Li

Wilfrid Laurier University - School of Business & Economics ( email )

Waterloo, Ontario N2L 3C5
Canada

Jiaping Qiu

McMaster University - Michael G. DeGroote School of Business ( email )

1280 Main Street West
Hamilton, Ontario L8S 4M4
Canada

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