A Corporate Governance Reform as a Natural Experiment for Incentive Contracts
AbstractWe use a major shift in the legal and institutional environment to identify contractual incentives from the correlation of executive pay and performance. We take the reform of the German stock companies act in 1884 as such a major shift, and estimate the sensitivity of pay to performance between 1870 and 1910 for executives of nine large banks. the reform substantially enhanced corporate control and strengthened monitoring incentives. Accordingly, we find the pay-performance sensitivity decreases significantly after the reform. Executives received a bonus of M29 per M1,000, increasing profits before 1884, but after the reform the sensitivity decreased by two-thirds.
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Bibliographic InfoArticle provided by LMU Munich School of Management in its journal Schmalenbach Business Review.
Volume (Year): 60 (2008)
Issue (Month): 4 (October)
Corporate Governance; Legal Reform; Natural Experiment; Pay-Performance Sensitivity;
Other versions of this item:
- Carsten Burhop & Christian Bayer, 2004. "A Corporate Governance Reform As A Natural Experiment For Incentive Contracts," Royal Economic Society Annual Conference 2004 149, Royal Economic Society.
- Christian Bayer & Carsten Burhop, 2004. "A Corporate Governance Reform as a Natural Experiment for Incentive Contracts," Finance 0407002, EconWPA.
- G30 - Financial Economics - - Corporate Finance and Governance - - - General
- J33 - Labor and Demographic Economics - - Wages, Compensation, and Labor Costs - - - Compensation Packages; Payment Methods
- N23 - Economic History - - Financial Markets and Institutions - - - Europe: Pre-1913
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