A Corporate Governance Reform As A Natural Experiment For Incentive Contracts
AbstractThe present paper proposes to employ a major shift in the legal and institutional environment to identify contractual incentives from the correlation of executive pay and firm performance. We use the reform of the German stock companies act in 1884 as such a major shift and estimate the sensitivity of the pay to firm 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 to decrease significantly after the reform. While executives received a bonus of 39 M per 1000 M increase in profits before 1884, after the reform the sensitivity decreased by two-thirds.
Download InfoIf you experience problems downloading a file, check if you have the proper application to view it first. In case of further problems read the IDEAS help page. Note that these files are not on the IDEAS site. Please be patient as the files may be large.
Bibliographic InfoPaper provided by Royal Economic Society in its series Royal Economic Society Annual Conference 2004 with number 149.
Date of creation: 17 Sep 2004
Date of revision:
Contact details of provider:
Postal: Office of the Secretary-General, School of Economics and Finance, University of St. Andrews, St. Andrews, Fife, KY16 9AL, UK
Phone: +44 1334 462479
Web page: http://www.res.org.uk/society/annualconf.asp
More information through EDIRC
Other versions of this item:
- Christian Bayer & Carsten Burhop, 2008. "A Corporate Governance Reform as a Natural Experiment for Incentive Contracts," Schmalenbach Business Review (sbr), LMU Munich School of Management, vol. 60(4), pages 378-399, October.
- 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
This paper has been announced in the following NEP Reports:
- NEP-ALL-2004-09-30 (All new papers)
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
- Arellano, Manuel & Bond, Stephen, 1991.
"Some Tests of Specification for Panel Data: Monte Carlo Evidence and an Application to Employment Equations,"
Review of Economic Studies,
Wiley Blackwell, vol. 58(2), pages 277-97, April.
- Tom Doan, . "RATS program to replicate Arellano-Bond 1991 dynamic panel," Statistical Software Components RTZ00169, Boston College Department of Economics.
- Brian J. Hall & Jeffrey B. Liebman, 1998.
"Are CEOs Really Paid Like Bureaucrats?,"
The Quarterly Journal of Economics,
MIT Press, vol. 113(3), pages 653-691, August.
- Holmstrom, Bengt, 1999.
"Managerial Incentive Problems: A Dynamic Perspective,"
Review of Economic Studies,
Wiley Blackwell, vol. 66(1), pages 169-82, January.
- Bengt Holmstrom, 1999. "Managerial Incentive Problems: A Dynamic Perspective," NBER Working Papers 6875, National Bureau of Economic Research, Inc.
- Volker Grossmann, 2003.
"Managerial Job Assignment and Imperfect Competition in Asymmetric Equilibrium,"
CESifo Working Paper Series
914, CESifo Group Munich.
- Grossmann, Volker, 2003. "Managerial Job Assignment and Imperfect Competition in Asymmetric Equilibrium," IZA Discussion Papers 738, Institute for the Study of Labor (IZA).
- Baltagi, Badi H. & Wu, Ping X., 1999. "Unequally Spaced Panel Data Regressions With Ar(1) Disturbances," Econometric Theory, Cambridge University Press, vol. 15(06), pages 814-823, December.
- Jensen, Michael C & Murphy, Kevin J, 1990.
"Performance Pay and Top-Management Incentives,"
Journal of Political Economy,
University of Chicago Press, vol. 98(2), pages 225-64, April.
- Paul L. Joskow & Nancy L. Rose & Catherin D. Wolfram, 1994.
"Political Constraints on Executive Compensation: Evidence from the Electric Utility Industry,"
NBER Working Papers
4980, National Bureau of Economic Research, Inc.
- Paul L. Joskow & Nancy L. Rose & Catherine Wolfram, 1996. "Political Constraints on Executive Compensation: Evidence from the Electric Utility Industry," RAND Journal of Economics, The RAND Corporation, vol. 27(1), pages 165-182, Spring.
- Conyon, Martin J., 1997. "Corporate governance and executive compensation," International Journal of Industrial Organization, Elsevier, vol. 15(4), pages 493-509, July.
- Andrei Shleifer & Robert W. Vishny, 1995.
"A Survey of Corporate Governance,"
Harvard Institute of Economic Research Working Papers
1741, Harvard - Institute of Economic Research.
- Hsiao,Cheng, 2003.
"Analysis of Panel Data,"
Cambridge University Press, number 9780521522717, December.
- Takao Kato, 1999.
"Chief Executive Compensation and Corporate Groups in Japan: New Evidence From Micro Data,"
- Kato, Takao, 1997. "Chief executive compensation and corporate groups in Japan: New evidence from micro data," International Journal of Industrial Organization, Elsevier, vol. 15(4), pages 455-467, July.
- Takao Kato, 1999. "Chief Executive Compensation and Corporate Groups in Japan: New Evidence From Micro Data," Macroeconomics 9906003, EconWPA.
- Takao Kato, 1994. "Chief Executive Compensation and Corporate Groups in Japan: New Evidence from Micro Data," Economics Working Paper Archive wp_117, Levy Economics Institute, The.
- Lazear, Edward P, 1986. "Salaries and Piece Rates," The Journal of Business, University of Chicago Press, vol. 59(3), pages 405-31, July.
- Lazear, Edward, 2003. "Output-Based Pay: Incentives, Retention or Sorting?," IZA Discussion Papers 761, Institute for the Study of Labor (IZA).
- John E. Core & Wayne R. Guay & David F. Larcker, 2003. "Executive equity compensation and incentives: a survey," Economic Policy Review, Federal Reserve Bank of New York, issue Apr, pages 27-50.
- Canice Prendergast, 1999. "The Provision of Incentives in Firms," Journal of Economic Literature, American Economic Association, vol. 37(1), pages 7-63, March.
- Rajesh Aggarwal & Andrew A. Samwick, 1998.
"The Other Side of the Tradeoff: The Impact of Risk on Executive Compensation,"
NBER Working Papers
6634, National Bureau of Economic Research, Inc.
- Rajesh K. Aggarwal & Andrew A. Samwick, 1999. "The Other Side of the Trade-off: The Impact of Risk on Executive Compensation," Journal of Political Economy, University of Chicago Press, vol. 107(1), pages 65-105, February.
- Kraft, Kornelius & Niederprum, Antonia, 1999. "Determinants of management compensation with risk-averse agents and dispersed ownership of the firm," Journal of Economic Behavior & Organization, Elsevier, vol. 40(1), pages 17-27, September.
- Christian Bayer & Carsten Burhop, 2005. "If only I could sack you! Management turnover and performance in large German Banks between 1874 and 1913," Economic History 0502006, EconWPA.
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Christopher F. Baum).
If references are entirely missing, you can add them using this form.