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.
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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
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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)
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