44 Pages Posted: 4 Apr 2014 Last revised: 6 Aug 2017
Date Written: August 3, 2017
Boards of directors serve as the middlemen to match firms with CEOs. When market-wide board independence is low, CEO assignment is distorted from positive assortative matching (PAM) as larger firms match with less talented CEOs. CEO compensation increases with CEO talent irrespective of the assignment but only increases with firm size when PAM holds. Corporate governance is affected by both the assignment and the distribution of CEO talent. CEO assignment, compensation, and corporate governance have different patterns between large firms and small firms. I provide empirical evidence on CEO assignment, as well as additional empirical and policy implications.
Keywords: Matching, CEO assignment, CEO Compensation, Corporate Governance
JEL Classification: G34, J33, D82
Suggested Citation: Suggested Citation
Li, Zhan, Big Fish in Small Ponds: CEO Assignment, Compensation, and Corporate Governance (August 3, 2017). Available at SSRN: https://ssrn.com/abstract=2419670 or http://dx.doi.org/10.2139/ssrn.2419670