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CEO Attributes, Compensation, and Firm Value: Evidence from a Structural Estimation

66 Pages Posted: 2 Sep 2016 Last revised: 1 May 2017

T. Beau Page

Tulane University - Finance & Economics

Date Written: April 13, 2017

Abstract

We present and estimate a dynamic model of CEO compensation and effort provision. We find that variation in CEO attributes explains the majority of variation in compensation (equity and total) but little of the variation in firm value. The primary drivers of cross-sectional compensation are risk aversion and influence on the board. Additionally, we estimate the magnitude of CEO agency issues. Removing CEO influence increases shareholder value in the typical firm by 1.74%, making CEOs risk neutral increases shareholder value by 16.12%, and removing all agency frictions increases shareholder value by 28.99%.

Keywords: CEO Compensation, Structural Estimation, Dynamic Principal-Agent Model, CEO Heterogeneity

JEL Classification: G32, G34, J33

Suggested Citation

Page, T. Beau, CEO Attributes, Compensation, and Firm Value: Evidence from a Structural Estimation (April 13, 2017). Journal of Financial Economics (JFE), Forthcoming. Available at SSRN: https://ssrn.com/abstract=2833716 or http://dx.doi.org/10.2139/ssrn.2833716

Beau Page (Contact Author)

Tulane University - Finance & Economics ( email )

A.B. Freeman School of Business
7 McAlister Drive
New Orleans, LA 70118
United States

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