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

66 Pages Posted: 2 Sep 2016 Last revised: 26 Apr 2018

See all articles by T. Beau Page

T. Beau Page

Government of the United States of America - Office of the Comptroller of the Currency (OCC)

Date Written: February 2, 2018

Abstract

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

Page, Beau, CEO Attributes, Compensation, and Firm Value: Evidence from a Structural Estimation (February 2, 2018). Journal of Financial Economics (JFE), Vol. 128, No. 2, 2018, Available at SSRN: https://ssrn.com/abstract=2833716 or http://dx.doi.org/10.2139/ssrn.2833716

Beau Page (Contact Author)

Government of the United States of America - Office of the Comptroller of the Currency (OCC) ( email )

400 7th Street SW
Washington, DC 20219
United States

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