Working Paper: NBER ID: w10494
Authors: Raghuram Rajan; Julie Wulf
Abstract: A widespread view is that executive perks exemplify agency problems -- they are a route through which managers misappropriate a firm’s surplus. Accordingly, firms with high free cash flow, operating in industries with limited investment prospects, should offer more perks, and firms subject to more external monitoring should offer fewer perks. The evidence for agency as an explanation of perks is, at best, mixed. Perks are, however, offered in situations in which they enhance managerial productivity. While we cannot rule out the occasional aberration, and while we have little to say on the overall level of perks, our findings suggest that treating perks purely as managerial excess is incorrect.
Keywords: executive perks; agency problems; managerial productivity; corporate governance
JEL Codes: G3; J3
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| executive perks (M52) | managerial productivity (D24) |
| company plane access (L93) | probability of offering perks (M52) |
| firm size (L25) | company plane access (L93) |
| geographic factors (R12) | perks offerings (M52) |
| high free cash flow (G39) | excessive perks (M52) |
| limited investment opportunities (G19) | excessive perks (M52) |