CEO Attributes, Compensation, and Firm Value: Evidence from a Structural Estimation
66 Pages Posted: 2 Sep 2016 Last revised: 1 May 2017
Date Written: April 13, 2017
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: Suggested Citation