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CEO Pay and Firm Size: An Update After the Crisis

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  • Xavier Gabaix
  • Augustin Landier
  • Julien Sauvagnat

Abstract

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.
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Suggested Citation

  • Xavier Gabaix & Augustin Landier & Julien Sauvagnat, 2014. "CEO Pay and Firm Size: An Update After the Crisis," Economic Journal, Royal Economic Society, vol. 124(574), pages 40-59, February.
  • Handle: RePEc:wly:econjl:v:124:y:2014:i:574:p:f40-f59
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    File URL: http://hdl.handle.net/10.1111/ecoj.2014.124.issue-574
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    References listed on IDEAS

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    Cited by:

    1. Linus Siming, 2017. "Government awards as economic instruments of governance," Post-Print hal-01625711, HAL.
    2. Lemieux, Thomas & Riddell, W. Craig, 2015. "Top Incomes in Canada: Evidence from the Census," CLSSRN working papers clsrn_admin-2015-12, Vancouver School of Economics, revised 07 Jul 2015.
    3. repec:oup:rfinst:v:30:y:2017:i:10:p:3605-3635. is not listed on IDEAS
    4. Emanuela Ciapanna & Marco Taboga & Eliana Viviano, 2015. "Sectoral differences in managers’ compensation: insights from a matching model," Temi di discussione (Economic working papers) 1000, Bank of Italy, Economic Research and International Relations Area.
    5. Sonia Di Giannatale Menegalli & Itza T. Q. Curiel-Cabral, 2013. "Compromises and Incentives," Working papers DTE 559, CIDE, División de Economía.
    6. Holger M. Mueller & Paige P. Ouimet & Elena Simintzi, 2015. "Wage Inequality and Firm Growth," NBER Working Papers 20876, National Bureau of Economic Research, Inc.
    7. Alex Edmans & Xavier Gabaix, 2016. "Executive Compensation: A Modern Primer," Journal of Economic Literature, American Economic Association, pages 1232-1287.
    8. Mueller, Holger M & Ouimet, Paige & Simintzi, Elena, 2015. "Wage Inequality and Firm Growth," CEPR Discussion Papers 10365, C.E.P.R. Discussion Papers.
    9. Seth H. Giertz & Jacob A. Mortenson, 2013. "Recent Income Trends for Top Executives: Evidence From Tax Return Data," National Tax Journal, National Tax Association, vol. 66(4), pages 913-938, December.
    10. Michael L. Bognanno, 2014. "Efficient markets, managerial power, and CEO compensation," IZA World of Labor, Institute for the Study of Labor (IZA), pages 1-34, August.
    11. repec:eee:jbfina:v:86:y:2018:i:c:p:159-176 is not listed on IDEAS
    12. Dominique Guellec & Caroline Paunov, 2017. "Digital Innovation and the Distribution of Income," NBER Working Papers 23987, National Bureau of Economic Research, Inc.
    13. Holger M. Mueller & Paige P. Ouimet & Elena Simintzi, 2015. "Wage Inequality and Firm Growth," LIS Working papers 632, LIS Cross-National Data Center in Luxembourg.

    More about this item

    JEL classification:

    • G34 - Financial Economics - - Corporate Finance and Governance - - - Mergers; Acquisitions; Restructuring; Corporate Governance
    • J24 - Labor and Demographic Economics - - Demand and Supply of Labor - - - Human Capital; Skills; Occupational Choice; Labor Productivity
    • J3 - Labor and Demographic Economics - - Wages, Compensation, and Labor Costs

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