CEO Attributes, Compensation, and Firm Value: Evidence from a Structural Estimation
66 Pages Posted: 2 Sep 2016 Last revised: 26 Apr 2018
Date Written: February 2, 2018
I present and estimate a dynamic model of chief executive oﬃcer (CEO) compensation and eﬀort provision. I 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, I 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