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CEO Pay and Firm Size: An Update After the Crisis

Listed author(s):
  • Xavier Gabaix
  • Augustin Landier
  • Julien Sauvagnat

In the "size of stakes" view quantitatively formalized in Gabaix and Landier (2008), CEO compensation is determined in a competitive talent market, and re flects the size of firms affected by talent. This paper offers empirical update on this view. The years 2004-2011, which include the recent crisis, were not part of the initial study and o er a laboratory to examine the theory as they include new positive and negative shocks to the size of large firms. Executive compensation at the top (ex ante) did closely track the evolution of average rm value during those years. During the crisis (2007 - 2009), average total firm value decreased by 17%, and CEO pay decreased by 28%. During 2009-2011, we observe a rebound of firm value by 19% and of CEO pay increased by 22%. These fairly proportional changes provide a validity check in favor of the "size of stakes" view.

(This abstract was borrowed from another version of this item.)

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File URL: http://hdl.handle.net/10.1111/ecoj.2014.124.issue-574
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Article provided by Royal Economic Society in its journal The Economic Journal.

Volume (Year): 124 (2014)
Issue (Month): 574 (February)
Pages: 40-59

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Handle: RePEc:wly:econjl:v:124:y:2014:i:574:p:f40-f59
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  3. Bereskin, Frederick L. & Cicero, David C., 2013. "CEO compensation contagion: Evidence from an exogenous shock," Journal of Financial Economics, Elsevier, vol. 107(2), pages 477-493.
  4. Xavier Gabaix & Augustin Landier, 2008. "Why has CEO Pay Increased So Much?," The Quarterly Journal of Economics, Oxford University Press, vol. 123(1), pages 49-100.
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  23. Alex Edmans & Xavier Gabaix & Augustin Landier, 2009. "A Multiplicative Model of Optimal CEO Incentives in Market Equilibrium," Review of Financial Studies, Society for Financial Studies, vol. 22(12), pages 4881-4917, December.
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