Abstract
In the `size of stakes' view quantitatively formalised in Gabaix and Landier (2008), CEO compensation reflects the size of firms affected by talent in a competitive market. The years 2004-2011 were not part of the initial study and offer a laboratory to examine the theory with new positive and negative shocks. Executive compensation (measured ex ante) did closely track the evolution of average firm value, supporting the `size of stakes' view out of sample. During 2007 - 2009, firm value decreased by 17%, and CEO pay by 28%. During 2009-2011, firm value increased by 19% and CEO pay by 22%.
Reference
Xavier Gabaix, Augustin Landier, and Julien Sauvagnat, “CEO Pay and Firm Size: an Update after the Crisis”, The Economic Journal, vol. 124, n. 574, February 2014, pp. 40–59.
See also
Published in
The Economic Journal, vol. 124, n. 574, February 2014, pp. 40–59