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Market Forces and CEO Pay: Shocks to CEO Demand Induced by IPO Waves

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  • Jordan Nickerson

Abstract

I develop a simple competitive equilibrium model and derive the prediction that CEO pay-size elasticity increases when more firms compete for an inelastic supply of managers. Using industry-level IPO waves as a proxy for increased competition for CEOs, I find that pay-size elasticity increases by 6% with a one-standard-deviation increase in IPO activity. This effect is stronger in specialized industries. In addition, increased IPO activity leads to a greater likelihood of executive transitions between firms. These findings indicate that market forces play a key role in the determination of CEO pay.Received August 6, 2015; editorial decision September 24, 2016 by Editor Francesca Cornelli.

Suggested Citation

  • Jordan Nickerson, 2017. "Market Forces and CEO Pay: Shocks to CEO Demand Induced by IPO Waves," The Review of Financial Studies, Society for Financial Studies, vol. 30(7), pages 2272-2312.
    • Handle: RePEc:oup:rfinst:v:30:y:2017:i:7:p:2272-2312.
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    File URL: http://hdl.handle.net/10.1093/rfs/hhx004
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    Cited by:

    1. Guoliang Frank Jiang & Jeffrey J. Reuer & Colette Southam & Paul W. Beamish, 2022. "The impact of initial public offerings on SMEs’ foreign investment decisions," Journal of International Business Studies, Palgrave Macmillan;Academy of International Business, vol. 53(5), pages 879-901, July.

    More about this item

    JEL classification:

    • J23 - Labor and Demographic Economics - - Demand and Supply of Labor - - - Labor Demand
    • J24 - Labor and Demographic Economics - - Demand and Supply of Labor - - - Human Capital; Skills; Occupational Choice; Labor Productivity
    • J31 - Labor and Demographic Economics - - Wages, Compensation, and Labor Costs - - - Wage Level and Structure; Wage Differentials
    • J42 - Labor and Demographic Economics - - Particular Labor Markets - - - Monopsony; Segmented Labor Markets
    • M12 - Business Administration and Business Economics; Marketing; Accounting; Personnel Economics - - Business Administration - - - Personnel Management; Executives; Executive Compensation

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