Working Paper: CEPR ID: DP9498
Authors: Xavier Gabaix; Augustin Landier; Julien Sauvagnat
Abstract: In the "size of stakes" view quantitatively formalized in Gabaix and Landier (2008), CEO compensation is determined in a competitive talent market, and reflects the size of firms affected by talent. This paper offers empirical update on this view. The years 2004-2011, which include the recent crisis, were not part of the initial study and o er a laboratory to examine the theory as they include new positive and negative shocks to the size of large firms. Executive compensation at the top (ex ante) did closely track the evolution of average rm value during those years. During the crisis (2007 - 2009), average total firm value decreased by 17%, and CEO pay decreased by 28%. During 2009-2011, we observe a rebound of firm value by 19% and of CEO pay increased by 22%. These fairly proportional changes provide a validity check in favor of the "size of stakes" view.
Keywords: assignment models; economics of superstars; executive pay; inequality; matching
JEL Codes: G34; J24; J3
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| CEO pay (M12) | firm size (L25) |
| firm size (L25) | CEO pay (M12) |
| firm value (G32) | CEO pay (M12) |
| CEO pay (M12) | firm value (G32) |