Publication Type

Conference Paper

Publication Date

7-2008

Abstract

We integrate an agency model with dynamic search equilibrium to study three important issues concerning executive compensation. We show that 1) the equilibrium pay-to-performance sensitivity depends positively on a firm’s specific risk, and negatively on its systematic risk, which offers a plausible explanation for the inconclusive empirical relationship between the pay-to-performance sensitivity and a firm’s total risk; 2) a growing economy simultaneously induces the growth in executive compensation and firm size; 3) the faster growth of executive compensation relative to the growth of firm size in the past decade is mostly due to the increase in firms’ specific risks.

Discipline

Corporate Finance | Human Resources Management

Research Areas

Finance

Publication

China International Conference in Finance, 2-5 July 2008, Dalian

City or Country

Dalian, China

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