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Search, product market competition and CEO pay

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  • Jung, Hae Won (Henny)
  • Subramanian, Ajay

Abstract

We develop a market equilibrium model to show how search frictions in the CEO market, agency conflicts and product market characteristics interact to affect CEO market tightness, firm size and CEO incentive pay. The theory generates novel implications that link firms' product markets with CEO markets. Different determinants of competition—the entry cost, product substitutability, and market size—have contrasting effects on CEO market tightness, CEO pay and firm size. We also derive new predictions for the impact of product market risk on firm size and CEO incentive compensation. We show empirical support for several cross-sectional hypotheses derived from the theory for how CEO pay, CEO incentives, firm size and market tightness vary with product market characteristics.

Suggested Citation

  • Jung, Hae Won (Henny) & Subramanian, Ajay, 2021. "Search, product market competition and CEO pay," Journal of Corporate Finance, Elsevier, vol. 69(C).
    • Handle: RePEc:eee:corfin:v:69:y:2021:i:c:s0929119921001024
    DOI: 10.1016/j.jcorpfin.2021.101981
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