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The Determinants and Impact of Executive-Firm Matches

Management Science, Forthcoming

69 Pages Posted: 18 Mar 2010 Last revised: 23 Dec 2015

Yihui Pan

University of Utah - Department of Finance

Date Written: April 12, 2015

Abstract

I estimate a model of executive-firm matching, in which both components of the executive labor market outcome -- the assignment of managers to firms and the cross-sectional distribution of executive pay -- are endogenously determined. Results in this paper reveal the importance of match specificity in productivity, driven by complementarities between firm and manager attributes. Therefore, one reason that larger, more diversified, research-intensive firms pay their executives more is because they are assortatively matched with managers that are talented, have more cross-industry experience, and are prone to innovation. More important, they outbid competing firms for these managers because they enjoy higher marginal productivity from given managerial skills. Announcement abnormal returns and executive tenure duration are both higher for matches with higher estimated productivity, suggesting mutual benefits for both the firms and the managers from assortative matching.

Keywords: Matching, Executive Compensation, Executive Labor Market, Structural Estimation, Complementarity

JEL Classification: G14, G30, J24, M51

Suggested Citation

Pan, Yihui, The Determinants and Impact of Executive-Firm Matches (April 12, 2015). Management Science, Forthcoming. Available at SSRN: https://ssrn.com/abstract=1571892 or http://dx.doi.org/10.2139/ssrn.1571892

Yihui Pan (Contact Author)

University of Utah - Department of Finance ( email )

David Eccles School of Business
Salt Lake City, UT 84112
United States

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