Market Forces and CEO Pay: Shocks to CEO Demand Induced by IPO Waves

58 Pages Posted: 19 Nov 2013 Last revised: 9 Jan 2017

Date Written: January 7, 2017

Abstract

I develop a simple competitive equilibrium model and derive the prediction that CEO pay-size elasticity increases when more firms compete for an inelastic supply of managers. Using industry-level IPO waves as a proxy for increased competition for CEOs, I find that pay-size elasticity increases by 6% with a one-standard-deviation increase in IPO activity. This effect is stronger in specialized industries. In addition, increased IPO activity leads to a greater likelihood of executive transitions between firms. These findings indicate that market forces play a key role in the determination of CEO pay.

Keywords: Executive Compensation, Labor Markets

JEL Classification: G30, J3, M51, J41, J63

Suggested Citation

Nickerson, Jordan, Market Forces and CEO Pay: Shocks to CEO Demand Induced by IPO Waves (January 7, 2017). Available at SSRN: https://ssrn.com/abstract=2356678 or http://dx.doi.org/10.2139/ssrn.2356678

Jordan Nickerson (Contact Author)

MIT - Sloan ( email )

100 Main Street
Cambridge, MA 02142
United States

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