Executive Compensation and the Market Valuation of Managerial Attributes

57 Pages Posted: 11 Jan 2015 Last revised: 21 Nov 2017

Si Li

Wilfrid Laurier University - School of Business & Economics

Marcos Fabricio Perez

Wilfrid Laurier University - School of Business & Economics

Date Written: October 27, 2017

Abstract

What personal traits are important in determining executive compensation, and how firms value these personal traits over time? We propose and estimate an interactive fixed effects model, which allows for time-variant valuation of unobserved manager attributes. We find that two managerial attributes are economically important in explaining executive pay. The first captures general managerial talent and its market price co-moves with the stock market. The second attribute cannot be explained by the model of competition for scarce managerial talent or by managers’ ability to extract rents, and the market price of this attribute has dramatically increased since early 2000’s.

Keywords: Executive compensation, CEO pay, managerial ability, human capital, fixed effects, manager fixed effects, interactive fixed effects, factor models

JEL Classification: G3, G32, J24, J31, J33, C23

Suggested Citation

Li, Si and Perez, Marcos Fabricio, Executive Compensation and the Market Valuation of Managerial Attributes (October 27, 2017). Available at SSRN: https://ssrn.com/abstract=2547738 or http://dx.doi.org/10.2139/ssrn.2547738

Si Li (Contact Author)

Wilfrid Laurier University - School of Business & Economics ( email )

Waterloo, Ontario N2L 3C5
Canada

Marcos Fabricio Perez

Wilfrid Laurier University - School of Business & Economics ( email )

Waterloo, Ontario N2L 3C5
CANADA
519-884 0710 (Phone)
519-884 0201 (Fax)

HOME PAGE: http://www.public.asu.edu/~mfperez/

Register to save articles to
your library

Register

Paper statistics

Downloads
115
rank
217,461
Abstract Views
635
PlumX