Has Moral Hazard Become a More Important Factor in Managerial Compensation?

George-Levi Gayle () and Robert A. Miller

American Economic Review, 2009, vol. 99, issue 5, 1740-69

Abstract: 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)

JEL-codes: D82 L25 M12 M52 (search for similar items in EconPapers)
Date: 2009
Note: DOI: 10.1257/aer.99.5.1740
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Citations: View citations in EconPapers (57)

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Working Paper: Has Moral Hazard Become a More Important Factor in Managerial Compensation? (2005)
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