What Death Can Tell: Are Executives Paid for Their Contributions to Firm Value?
Management Science, Volume 60, No. 12, December 2014, pages 2994-3010
37 Pages Posted: 22 Oct 2010 Last revised: 27 Mar 2015
Date Written: July 8, 2013
Using stock price reactions to sudden deaths of executives as a measure of expected contribution to shareholder value, we provide empirical evidence on the relationship between executive pay and managerial contribution to shareholder value. We find, first, that the managerial labor market is characterized by positive sorting: managers with high contributions to shareholder value obtain higher pay. We estimate, second, that an average executive appears to retain 70% to 80% of the marginal rent from the firm-manager relationship. Overall, our study provides an estimate of rent sharing that is informative for the ongoing discussion about the level of executive compensation.
Keywords: Executive Compensation, Managerial Ability, Sudden Death, Corporate Finance, Corporate Governance, Value of Top Executive
JEL Classification: G3, G30
Suggested Citation: Suggested Citation