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The Difference That CEOs Make: An Assignment Model Approach

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Author Info

  • Marko Tervio

Abstract

This paper presents an assignment model of CEOs and firms. The distributions of CEO pay levels and firms' market values are analyzed as the competitive equilibrium of a matching market where talents, as well as CEO positions, are scarce. It is shown how the observed joint distribution of CEO pay and market value can then be used to infer the economic value of underlying ability differences. The variation in CEO pay is found to be mostly due to variation in firm characteristics, whereas implied differences in managerial ability are small and make relatively little difference to shareholder value.

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File URL: http://www.aeaweb.org/articles.php?doi=10.1257/aer.98.3.642
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File URL: http://www.aeaweb.org/aer/data/june08/20070234_data.zip
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Bibliographic Info

Article provided by American Economic Association in its journal American Economic Review.

Volume (Year): 98 (2008)
Issue (Month): 3 (June)
Pages: 642-68

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Handle: RePEc:aea:aecrev:v:98:y:2008:i:3:p:642-68

Note: DOI: 10.1257/aer.98.3.642
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  1. What is a CEO worth?
    by Economic Logician in Economic Logic on 2008-09-30 14:30:00
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