IDEAS home Printed from https://ideas.repec.org/
MyIDEAS: Log in (now much improved!) to save this article

Do Entrenched Managers Pay Their Workers More?

  • HENRIK CRONQVIST
  • FREDRIK HEYMAN
  • MATTIAS NILSSON
  • HELENA SVALERYD
  • JONAS VLACHOS

Analyzing a 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 cash flow rights ownership mitigate such behavior. Entrenched CEOs pay more to employees closer to them in the corporate hierarchy, geographically closer to the headquarters, and associated with conflict-inclined unions. The evidence is consistent with entrenched CEOs paying more to enjoy private benefits such as lower effort wage bargaining and improved social relations with employees. Our results show that managerial ownership and corporate governance can play an important role for employee compensation. Copyright (c) 2009 The American Finance Association.

If 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.

File URL: http://www.blackwell-synergy.com/doi/abs/10.1111/j.1540-6261.2008.01435.x
File Function: link to full text
Download Restriction: Access to full text is restricted to subscribers.

As the access to this document is restricted, you may want to look for a different version under "Related research" (further below) or search for a different version of it.

Article provided by American Finance Association in its journal The Journal of Finance.

Volume (Year): 64 (2009)
Issue (Month): 1 (02)
Pages: 309-339

as
in new window

Handle: RePEc:bla:jfinan:v:64:y:2009:i:1:p:309-339
Contact details of provider: Web page: http://www.afajof.org/

More information through EDIRC

Order Information: Web: http://www.afajof.org/membership/join.asp

References listed on IDEAS
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.:

as in new window
  1. Pagano, Marco & Volpin, Paolo, 2002. "Managers, Workers and Corporate Control," CEPR Discussion Papers 3649, C.E.P.R. Discussion Papers.
  2. Art Durnev & E. Han Kim, 2005. "To Steal or Not to Steal: Firm Attributes, Legal Environment, and Valuation," Journal of Finance, American Finance Association, vol. 60(3), pages 1461-1493, 06.
  3. Marianne Bertrand & Sendhil Mullainathan, 1999. "Is There a Discretion in Wage Setting? A Test Using Takeover Legislation," RAND Journal of Economics, The RAND Corporation, vol. 30(3), pages 535-554, Autumn.
  4. Stulz, ReneM., 1988. "Managerial control of voting rights : Financing policies and the market for corporate control," Journal of Financial Economics, Elsevier, vol. 20(1-2), pages 25-54, January.
  5. Mike Burkart & Denis Gromb & Fausto Panunzi, 1997. "Large Shareholders, Monitoring, and the Value of the Firm," The Quarterly Journal of Economics, Oxford University Press, vol. 112(3), pages 693-728.
  6. Claessens, Stijn & Djankov, Simeon & Lang, Larry H. P., 2000. "The separation of ownership and control in East Asian Corporations," Journal of Financial Economics, Elsevier, vol. 58(1-2), pages 81-112.
  7. Jensen, Michael C. & Meckling, William H., 1976. "Theory of the firm: Managerial behavior, agency costs and ownership structure," Journal of Financial Economics, Elsevier, vol. 3(4), pages 305-360, October.
  8. Rafael La Porta & Florencio Lopez-de-Silane & Andrei Shleifer, 1998. "Corporate Ownership Around the World," NBER Working Papers 6625, National Bureau of Economic Research, Inc.
  9. Mitchell A. Petersen, 2005. "Estimating Standard Errors in Finance Panel Data Sets: Comparing Approaches," NBER Working Papers 11280, National Bureau of Economic Research, Inc.
  10. Guiso, Luigi & Pistaferri, Luigi & Schivardi, Fabiano, 2001. "Insurance Within the Firm," CEPR Discussion Papers 2793, C.E.P.R. Discussion Papers.
  11. Lucian Bebchuk & Reinier Kraakman & George Triantis, 1999. "Stock Pyramids, Cross-Ownership, and the Dual Class Equity: The Creation and Agency Costs of Seperating Control from Cash Flow Rights," NBER Working Papers 6951, National Bureau of Economic Research, Inc.
  12. Thaler, Richard H, 1989. "Interindustry Wage Differentials," Journal of Economic Perspectives, American Economic Association, vol. 3(2), pages 181-93, Spring.
  13. David Margolis, 1995. "High Wage Workers and High Wage Firms," Post-Print halshs-00378229, HAL.
  14. Philip E. Berger & Eli Ofek & David Yermack, 1996. "Managerial Entrenchment and Capital Structure Decisions," New York University, Leonard N. Stern School Finance Department Working Paper Seires 96-14, New York University, Leonard N. Stern School of Business-.
  15. Alan B. Krueger, 1991. "Ownership, Agency, and Wages: An Examination of Franchising in the Fast Food Industry," The Quarterly Journal of Economics, Oxford University Press, vol. 106(1), pages 75-101.
  16. Zhou, Xianming, 2001. "Understanding the determinants of managerial ownership and the link between ownership and performance: comment," Journal of Financial Economics, Elsevier, vol. 62(3), pages 559-571, December.
  17. Antoinette Schoar, 2002. "Effects of Corporate Diversification on Productivity," Journal of Finance, American Finance Association, vol. 57(6), pages 2379-2403, December.
  18. Marianne Bertrand & Sendhil Mullainathan, 2001. "Are CEOs Rewarded for Luck? The Ones Without Principals Are," The Quarterly Journal of Economics, Oxford University Press, vol. 116(3), pages 901-932.
  19. Perotti, Enrico C & Spier, Kathryn E, 1993. "Capital Structure as a Bargaining Tool: The Role of Leverage in Contract Renegotiation," American Economic Review, American Economic Association, vol. 83(5), pages 1131-41, December.
  20. Stephen G. Bronars & Donald R. Deere, 1991. "The Threat of Unionization, the Use of Debt, and the Preservation of Shareholder Wealth," The Quarterly Journal of Economics, Oxford University Press, vol. 106(1), pages 231-254.
  21. Holderness, Clifford G. & Sheehan, Dennis P., 1988. "The role of majority shareholders in publicly held corporations : An exploratory analysis," Journal of Financial Economics, Elsevier, vol. 20(1-2), pages 317-346, January.
  22. David G. Blanchflower & Andrew J. Oswald & Peter Sanfey, 1992. "Wages, Profits and Rent-Sharing," NBER Working Papers 4222, National Bureau of Economic Research, Inc.
  23. Oliver D. Hart, 1983. "The Market Mechanism as an Incentive Scheme," Bell Journal of Economics, The RAND Corporation, vol. 14(2), pages 366-382, Autumn.
  24. Titman, Sheridan, 1984. "The effect of capital structure on a firm's liquidation decision," Journal of Financial Economics, Elsevier, vol. 13(1), pages 137-151, March.
  25. Lichtenberg, Frank R & Siegel, Donald, 1990. "The Effect of Ownership Changes on the Employment and Wages of Central Office and Other Personnel," Journal of Law and Economics, University of Chicago Press, vol. 33(2), pages 383-408, October.
  26. Villalonga, Belen & Amit, Raphael, 2006. "How do family ownership, control and management affect firm value?," Journal of Financial Economics, Elsevier, vol. 80(2), pages 385-417, May.
  27. La Porta, Rafael & Lopez-de-Silanes, Florencio & Shleifer, Andrei & Vishny, Robert W., 1998. "Law and Finance," Scholarly Articles 3451310, Harvard University Department of Economics.
  28. Fama, Eugene F, 1980. "Agency Problems and the Theory of the Firm," Journal of Political Economy, University of Chicago Press, vol. 88(2), pages 288-307, April.
  29. Jonathan B. Berk & Richard Stanton & Josef Zechner, 2007. "Human Capital, Bankruptcy and Capital Structure," NBER Working Papers 13014, National Bureau of Economic Research, Inc.
  30. Andrei Shleifer & Lawrence H. Summers, 1987. "Breach of Trust in Hostile Takeovers," NBER Working Papers 2342, National Bureau of Economic Research, Inc.
  31. Oliver Hart & John Moore, 1990. "A Theory of Corporate Financial Structure Based on the Seniority of Claims," NBER Working Papers 3431, National Bureau of Economic Research, Inc.
  32. Sanford J. Grossman & Oliver D. Hart, 1982. "Corporate Financial Structure and Managerial Incentives," NBER Chapters, in: The Economics of Information and Uncertainty, pages 107-140 National Bureau of Economic Research, Inc.
  33. Demsetz, Harold & Lehn, Kenneth, 1985. "The Structure of Corporate Ownership: Causes and Consequences," Journal of Political Economy, University of Chicago Press, vol. 93(6), pages 1155-77, December.
  34. Jensen, Michael C, 1986. "Agency Costs of Free Cash Flow, Corporate Finance, and Takeovers," American Economic Review, American Economic Association, vol. 76(2), pages 323-29, May.
  35. David Scharfstein, 1988. "Product-Market Competition and Managerial Slack," RAND Journal of Economics, The RAND Corporation, vol. 19(1), pages 147-155, Spring.
  36. Cronqvist, Henrik & Nilsson, Mattias, 2000. "Agency Costs of Controlling Minority Shareholders," SSE/EFI Working Paper Series in Economics and Finance 364, Stockholm School of Economics, revised 06 Jun 2000.
  37. Harris, Milton & Raviv, Artur, 1988. "Corporate control contests and capital structure," Journal of Financial Economics, Elsevier, vol. 20(1-2), pages 55-86, January.
  38. Jensen, Michael C. & Ruback, Richard S., 1983. "The market for corporate control : The scientific evidence," Journal of Financial Economics, Elsevier, vol. 11(1-4), pages 5-50, April.
  39. Stulz, ReneM., 1990. "Managerial discretion and optimal financing policies," Journal of Financial Economics, Elsevier, vol. 26(1), pages 3-27, July.
  40. Fama, Eugene F & MacBeth, James D, 1973. "Risk, Return, and Equilibrium: Empirical Tests," Journal of Political Economy, University of Chicago Press, vol. 81(3), pages 607-36, May-June.
  41. Augustin Landier & Vinay B. Nair & Julie Wulf, 2009. "Trade-offs in Staying Close: Corporate Decision Making and Geographic Dispersion," Review of Financial Studies, Society for Financial Studies, vol. 22(3), pages 1119-1148, March.
  42. repec:fth:prinin:430 is not listed on IDEAS
  43. repec:cep:stitep:/1990/217 is not listed on IDEAS
  44. Cronqvist, Henrik & Nilsson, Mattias, 2001. "The choice between rights offerings and private equity placements," SSE/EFI Working Paper Series in Economics and Finance 0452, Stockholm School of Economics, revised 21 Jan 2002.
  45. Claessens, Stijn & Djankov^, Simeon & Fan, Joseph P.H. & Lang, Larry H.P., 2000. "Expropriation of Minority Shareholders in East Asia," CEI Working Paper Series 2000-4, Center for Economic Institutions, Institute of Economic Research, Hitotsubashi University.
  46. Marianne Bertrand & Sendhil Mullainathan, 2003. "Enjoying the Quiet Life? Corporate Governance and Managerial Preferences," Journal of Political Economy, University of Chicago Press, vol. 111(5), pages 1043-1075, October.
  47. Core, John E. & Holthausen, Robert W. & Larcker, David F., 1999. "Corporate governance, chief executive officer compensation, and firm performance," Journal of Financial Economics, Elsevier, vol. 51(3), pages 371-406, March.
  48. Marianne Bertrand & Sendhil Mullainathan, 2000. "Agents with and without Principals," Working Papers 809, Princeton University, Department of Economics, Industrial Relations Section..
  49. Shleifer, Andrei & Vishny, Robert W, 1986. "Large Shareholders and Corporate Control," Journal of Political Economy, University of Chicago Press, vol. 94(3), pages 461-88, June.
  50. Brown, Charles & Medoff, James, 1989. "The Employer Size-Wage Effect," Journal of Political Economy, University of Chicago Press, vol. 97(5), pages 1027-59, October.
  51. Iversen, Torben, 1998. "Wage Bargaining, Central Bank Independence, and the Real Effects of Money," International Organization, Cambridge University Press, vol. 52(03), pages 469-504, June.
  52. Lazear, Edward P & Rosen, Sherwin, 1981. "Rank-Order Tournaments as Optimum Labor Contracts," Journal of Political Economy, University of Chicago Press, vol. 89(5), pages 841-64, October.
  53. Sendhil Mullainathan & Marianne Bertrand, 2000. "Agents with and without Principals," American Economic Review, American Economic Association, vol. 90(2), pages 203-208, May.
  54. Oi, Walter Y. & Idson, Todd L., 1999. "Firm size and wages," Handbook of Labor Economics, in: O. Ashenfelter & D. Card (ed.), Handbook of Labor Economics, edition 1, volume 3, chapter 33, pages 2165-2214 Elsevier.
  55. Rosett, Joshua G., 1990. "Do union wealth concessions explain takeover premiums? : The evidence on contract wages," Journal of Financial Economics, Elsevier, vol. 27(1), pages 263-282, September.
  56. White, Halbert, 1980. "A Heteroskedasticity-Consistent Covariance Matrix Estimator and a Direct Test for Heteroskedasticity," Econometrica, Econometric Society, vol. 48(4), pages 817-38, May.
  57. Zwiebel, Jeffrey, 1996. "Dynamic Capital Structure under Managerial Entrenchment," American Economic Review, American Economic Association, vol. 86(5), pages 1197-1215, December.
  58. repec:pri:indrel:430 is not listed on IDEAS
  59. Hanka, Gordon, 1998. "Debt and the terms of employment," Journal of Financial Economics, Elsevier, vol. 48(3), pages 245-282, June.
Full references (including those not matched with items on IDEAS)

This item is not listed on Wikipedia, on a reading list or among the top items on IDEAS.

When requesting a correction, please mention this item's handle: RePEc:bla:jfinan:v:64:y:2009:i:1:p:309-339. See general information about how to correct material in RePEc.

For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Wiley-Blackwell Digital Licensing)

or (Christopher F. Baum)

If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

If references are entirely missing, you can add them using this form.

If the full references list an item that is present in RePEc, but the system did not link to it, you can help with this form.

If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your profile, as there may be some citations waiting for confirmation.

Please note that corrections may take a couple of weeks to filter through the various RePEc services.

This information is provided to you by IDEAS at the Research Division of the Federal Reserve Bank of St. Louis using RePEc data.