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Do Entrenched Managers Pay Their Workers More?

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Author Info
Cronqvist, Henrik
Heyman, Fredrik
Nilsson, Mattias
Svaleryd, Helena
Vlachos, Jonas

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Abstract

Analyzing a large panel that matches public firms with worker-level data, we find that managerial entrenchment affects workers’ pay. CEOs with more control pay their workers more, but financial incentives through ownership of cash flow rights mitigate such behaviour. These findings do not seem to be driven by productivity differences, and are not affected by a series of robustness tests. Moreover, we find that entrenched CEOs pay more to (i) workers associated with aggressive unions; (ii) workers closer to the CEO in the corporate hierarchy, such as CFOs, division vice-presidents and other top-executives; and (iii) workers geographically closer to the corporate headquarters. This evidence is consistent with entrenched CEOs paying higher wages to enjoy non-pecuniary private benefits such as lower effort wage bargaining and improved social relations with certain workers. More generally, our results show that managerial ownership and corporate governance can play an important role for labour market outcomes.

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Paper provided by C.E.P.R. Discussion Papers in its series CEPR Discussion Papers with number 5371.

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Date of creation: Dec 2005
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Handle: RePEc:cpr:ceprdp:5371

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Related research
Keywords: agency problems; corporate governance; matched employer-employee data; private benefits; wages;

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Find related papers by JEL classification:
G32 - Financial Economics - - Corporate Finance and Governance - - - Financing Policy; Capital and Ownership Structure
G34 - Financial Economics - - Corporate Finance and Governance - - - Mergers; Acquisitions; Restructuring; Corporate Governance
J31 - Labor and Demographic Economics - - Wages, Compensation, and Labor Costs - - - Wage Level and Structure; Wage Differentials
J33 - Labor and Demographic Economics - - Wages, Compensation, and Labor Costs - - - Compensation Packages; Payment Methods

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