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Consequences of deviating from predicted CEO labor market compensation on long-term firm value

Eric A. Fong, Xuejing Xing, Wafa Orman () and William I. Mackenzie

Journal of Business Research, 2015, vol. 68, issue 2, 299-305

Abstract: Building upon labor market theory, we investigate whether under- or over-investing in CEOs (i.e., strategically paying above or below a CEO's predicted labor market compensation rate) affects long-term firm value and whether there are diminishing returns to these investments. Our results indicate that investments in CEOs are positively related to long-term firm value and that the relationship diminishes, eventually becoming negative, as investments increase.

Keywords: CEO compensation; Firm value; Labor markets; Tobin's Q (search for similar items in EconPapers)
Date: 2015
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Persistent link: https://EconPapers.repec.org/RePEc:eee:jbrese:v:68:y:2015:i:2:p:299-305

DOI: 10.1016/j.jbusres.2014.07.004

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