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Do Entrenched Managers Pay Their Workers More?

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Author Info
Cronqvist, Henrik (Ohio State U)
Heyman, Fredrik (Research Institute of Industrial Economics)
Nilsson, Mattias (Worcester Polytechnic Institute)
Svaleryd, Helena (Research Institute of Industrial Economics)
Vlachos, Jonas (SITE, Stockholm School of Economics)

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Abstract

We present evidence on whether managerial entrenchment affects workers’ pay, using a large panel dataset that matches public firms with detailed data on their subsidiaries and workers. We find that CEOs with a stronger grip on control pay their workers higher wages, but CEO ownership of cash flow rights mitigates such behavior. Unionized workers and executives are found to get a larger share of the higher pay. These findings do not seem to be driven by productivity differences or reverse causality, and are robust to a series of robustness checks. Our evidence is consistent with an agency model in which entrenched managers pay higher wages because they come with direct private benefits for the manager, such as lower-effort wage bargaining and better CEO-employee relations, and suggests more broadly an important link between the corporate governance of large public firms and labor market outcomes.

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Paper provided by Ohio State University, Charles A. Dice Center for Research in Financial Economics in its series Working Paper Series with number 2005-23.

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Date of creation: Sep 2006
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Handle: RePEc:ecl:ohidic:2005-23

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G32 - Financial Economics - - Corporate Finance and Governance - - - Financing Policy; Capital and Ownership Structure

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