The Stock Market Bubble, Shareholders' Attribution Bias and Excessive Top CEOS Pay

21 Pages Posted: 17 Oct 2005

Date Written: June 1, 2005


I use aggregate time series data on profits in the corporate sector, S&P composite index and the average total pay of the top 100 CEOs to look for evidence in favor or against a fundamental attribution bias based explanation of the recent explosive growth in CEOs pay. I hypothesize that shareholders incorrectly believe that prominent increases and decreases in the price of the stock of a particular corporation result from the leadership and skill of the CEO managing this particular corporation, where in fact stock market fluctuations which are beyond CEO control are the driving force. I recast this hypothesis as a simple endogeneity test and I cannot reject the view that market fluctuations mechanically cause changes in CEO compensation with no detectable reverse causality. Further, I find that in the aggregate data increases in CEOs pay decrease corporate profits. I conclude that in the late 90s stock market bubble period, shareholders were taken for a ride and ended up paying huge amounts of money to their CEO for no rational reason.

Keywords: CEOs pay, attribution bias, internet stocks bubble

JEL Classification: G34, J31, C20

Suggested Citation

Kolev, Gueorgui I., The Stock Market Bubble, Shareholders' Attribution Bias and Excessive Top CEOS Pay (June 1, 2005). Available at SSRN: or

Gueorgui I. Kolev (Contact Author)

EDHEC Business School ( email )

24 avenue Gustave Delory
CS 50411
+33 (0) 320 154 558 (Phone)

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