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Consequences of deviating from predicted CEO labor market compensation on long-term firm value

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  • Fong, Eric A.
  • Xing, Xuejing
  • Orman, Wafa Hakim
  • Mackenzie, William I.

Abstract

Building upon labor market theory, we investigate whether under- or over-investing in CEOs (i.e., strategically paying above or below a CEO's predicted labor market compensation rate) affects long-term firm value and whether there are diminishing returns to these investments. Our results indicate that investments in CEOs are positively related to long-term firm value and that the relationship diminishes, eventually becoming negative, as investments increase.

Suggested Citation

  • Fong, Eric A. & Xing, Xuejing & Orman, Wafa Hakim & Mackenzie, William I., 2015. "Consequences of deviating from predicted CEO labor market compensation on long-term firm value," Journal of Business Research, Elsevier, vol. 68(2), pages 299-305.
    • Handle: RePEc:eee:jbrese:v:68:y:2015:i:2:p:299-305
    DOI: 10.1016/j.jbusres.2014.07.004
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