Has Moral Hazard Become a More Important Factor in Managerial Compensation?
Gayle, George-Levi, and
Robert A. Miller. 2009. "Has Moral Hazard Become a More Important Factor in Managerial Compensation?."
American Economic Review,
We estimate a principal-agent model of moral hazard with longitudinal data
on firms and managerial compensation over two disjoint periods spanning 60
years to investigate increased value and variability in managerial compensation.
We find exogenous growth in firm size largely explains these secular
trends in compensation. In our framework, exogenous firm size works through
two channels. First, conflicts of interest between shareholders and managers
are magnified in large firms, so optimal compensation plans are now more
closely linked to insider wealth. Second, the market for managers has become
more differentiated, increasing the premium paid to managers of large versus
small firms. (JEL D82, L25, M12, M52)
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Gayle, George-Levi (Carnegie Mellon U)
Miller, Robert A. (Carnegie Mellon U)
D82: Asymmetric and Private Information
L25: Firm Performance: Size, Diversification, and Scope
M12: Personnel Management; Executive Compensation
M52: Personnel Economics: Compensation and Compensation Methods and Their Effects