Big Fish in a Small Pond: CEO Compensation, Corporate Governance, and Equilibrium Matching

44 Pages Posted: 4 Apr 2014 Last revised: 6 Mar 2017

Zhan Li

University of Winnipeg

Date Written: March 5, 2017

Abstract

This paper examines how firms match with CEOs and its implications for CEO compensation and corporate governance. When board independence is low, more talented CEOs match with smaller firms, resulting in an equilibrium of “big fish in a small pond”. In such an equilibrium, CEO compensation increases with CEO talent for all firms but can decrease with firm size for smaller firms; corporate governance decreases with firm size if CEO talent is scarce and increases with CEO talent if it is abundant. These results have implications for CEO turnover, the robustness of empirical research, and government policies.

Keywords: Matching, CEO Compensation, Corporate Governance

JEL Classification: G34, J33, D82

Suggested Citation

Li, Zhan, Big Fish in a Small Pond: CEO Compensation, Corporate Governance, and Equilibrium Matching (March 5, 2017). Available at SSRN: https://ssrn.com/abstract=2419670 or http://dx.doi.org/10.2139/ssrn.2419670

Zhan Li (Contact Author)

University of Winnipeg ( email )

Winnipeg, Manitoba R3B 2E9
United States

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