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Do boards know when they hire a CEO that is a good match? Evidence from initial compensation

  • Allgood, Sam
  • Farrell, Kathleen A.
  • Kamal, Rashiqa
Registered author(s):

    Are CEO initial compensation packages based on variations in the expected match quality of the hiring firms? Using CEO tenure as a proxy for expected match quality, and a sample of CEO turnovers between 1992 and 2006, we find that CEOs that experience good matches, defined as tenures exceeding four years, have higher initial compensation packages. We also find evidence from exogenous switching regression models that inside CEOs receive a higher good match premium than outside CEOs. To account for economic and regulatory changes across our sample period, we divide our sample into three subsamples: 1992–1997, 1998–2002, and 2003–2006, and repeat our analyses. Even though the positive relation between expected match quality and initial compensation persists across all periods, we find that the good match premium for inside and outside CEOs does not differ in the post-2002 period. We attribute this result to increased board independence and changes in regulation (Sarbanes–Oxley) in the post-2002 sample period.

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    Article provided by Elsevier in its journal Journal of Corporate Finance.

    Volume (Year): 18 (2012)
    Issue (Month): 5 ()
    Pages: 1051-1064

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    Handle: RePEc:eee:corfin:v:18:y:2012:i:5:p:1051-1064
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