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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

Bang Dang Nguyen

University of Cambridge Judge Business School

Kasper Meisner Nielsen

Hong Kong University of Science & Technology (HKUST) - Department of Finance

Date Written: July 8, 2013

Abstract

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

Nguyen, Bang Dang and Nielsen, Kasper Meisner, What Death Can Tell: Are Executives Paid for Their Contributions to Firm Value? (July 8, 2013). Management Science, Volume 60, No. 12, December 2014, pages 2994-3010. Available at SSRN: https://ssrn.com/abstract=1695366 or http://dx.doi.org/10.2139/ssrn.1695366

Bang Dang Nguyen (Contact Author)

University of Cambridge Judge Business School ( email )

Trumpington Street
Cambridge, CB2 1AG
United Kingdom
+44 122 376 0470 (Phone)
+44 1223 339701 (Fax)

HOME PAGE: http://www.jbs.cam.ac.uk/research/faculty/nguyenbd.html

Kasper Meisner Nielsen

Hong Kong University of Science & Technology (HKUST) - Department of Finance ( email )

Clear Water Bay, Kowloon
Hong Kong

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