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CEO compensation contagion: Evidence from an exogenous shock

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  • Bereskin, Frederick L.
  • Cicero, David C.

Abstract

We examine how Chief Executive Officer (CEO) compensation increased at a subset of firms in response to a governance shock that affected compensation levels at other firms in the economy. We first show that Delaware-incorporated firms with staggered boards and no outside blockholders increased CEO compensation following the mid-1990s Delaware legal cases that strengthened their ability to resist hostile takeovers. Consistent with the Gabaix and Landier (2008) contagion hypothesis, non-Delaware firms subsequently increased CEO compensation when the rulings affected a substantial number of firms in their industries. We further show how these legal developments contributed significantly to the rapid increase in CEO compensation in the late 1990s.

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  • 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.
    • Handle: RePEc:eee:jfinec:v:107:y:2013:i:2:p:477-493
    DOI: 10.1016/j.jfineco.2012.09.005
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    Cited by:

    1. Qi Liu & Bo Sun, 2016. "Relative Wealth Concerns, Executive Compensation, and Systemic Risk-Taking," International Finance Discussion Papers 1164, Board of Governors of the Federal Reserve System (U.S.).
    2. Kai Zhao & Huahua Huang & Wanshu Wu, 2022. "State-Level Urban Agglomeration and Enterprise Innovation: A Quasi-Natural Experiment," Sustainability, MDPI, vol. 14(15), pages 1-17, July.
    3. Meir Russ & Bino Catas?s, 2014. "Editorial. Intellectual Capital and Management Control: Human Capital Valuation and other challenges," MANAGEMENT CONTROL, FrancoAngeli Editore, vol. 2014(2), pages 5-21.
    4. Alex Edmans & Xavier Gabaix, 2016. "Executive Compensation: A Modern Primer," Journal of Economic Literature, American Economic Association, vol. 54(4), pages 1232-1287, December.
    5. Wruck, Karen H. & Wu, YiLin, 2021. "The relation between CEO equity incentives and the quality of accounting disclosures: New evidence," Journal of Corporate Finance, Elsevier, vol. 67(C).
    6. Heron, Randall A. & Lie, Erik, 2015. "The effect of poison pill adoptions and court rulings on firm entrenchment," Journal of Corporate Finance, Elsevier, vol. 35(C), pages 286-296.
    7. Lei Gao & Andrey Zagorchev, 2020. "Dual-Class Firms and Innovation after NAFTA," Review of Pacific Basin Financial Markets and Policies (RPBFMP), World Scientific Publishing Co. Pte. Ltd., vol. 23(01), pages 1-33, March.
    8. 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.
    9. Amore, Mario Daniele & Schwenen, Sebastian, 2020. "The Value of Luck in the Labor Market for CEOs," CEPR Discussion Papers 14839, C.E.P.R. Discussion Papers.
    10. Jeffrey (Jun) Chen & Yun Guan & Ivy Tang, 2020. "Optimal Contracting of Pension Incentive: Evidence of Currency Risk Management in Multinational Companies," JRFM, MDPI, vol. 13(2), pages 1-29, February.
    11. Francis, Bill & Hasan, Iftekhar & Wu, Qiang & Park, Jong Chool, 2014. "Gender differences in financial reporting decision-making: Evidence from accounting conservatism," Bank of Finland Research Discussion Papers 1/2014, Bank of Finland.
    12. Bill Francis & Iftekhar Hasan & Jong Chool Park & Qiang Wu, 2015. "Gender Differences in Financial Reporting Decision Making: Evidence from Accounting Conservatism," Contemporary Accounting Research, John Wiley & Sons, vol. 32(3), pages 1285-1318, September.
    13. repec:zbw:bofrdp:2014_001 is not listed on IDEAS

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    More about this item

    Keywords

    Executive compensation; Classified board; Poison pill; Delaware; Corporate governance;
    All these keywords.

    JEL classification:

    • G30 - Financial Economics - - Corporate Finance and Governance - - - General
    • G34 - Financial Economics - - Corporate Finance and Governance - - - Mergers; Acquisitions; Restructuring; Corporate Governance

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