Are Perks Purely Managerial Excess?
AbstractWhy do some firms tend to offer executives a variety of perks while others offer none at all? A widespread view in the corporate finance literature is that executive perks are a form of agency or private benefit and a way for managers to misappropriate some of the surplus the firm generates. According to this view, firms with plenty of free cash flow that operate in industries with limited investment prospects should typically offer perks. The theory also suggests that firms that are subject to more external monitoring should have fewer perks. Overall, the evidence for the private benefits explanation is, at best, mixed. We do, however, find evidence that perks are offered most in situations where they are likely to enhance managerial productivity. This suggests that a view of perks that sees them purely as managerial excess is incorrect.
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Date of creation: May 2004
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Other versions of this item:
- G3 - Financial Economics - - Corporate Finance and Governance
- J3 - Labor and Demographic Economics - - Wages, Compensation, and Labor Costs
This paper has been announced in the following NEP Reports:
- NEP-ALL-2004-06-07 (All new papers)
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