CEO compensation contagion: Evidence from an exogenous shock

Frederick L. Bereskin and David C. Cicero

Journal of Financial Economics, 2013, vol. 107, issue 2, 477-493

Abstract: We examine how Chief Executive Officer (CEO) compensation increased at a subset of firms in response to a governance shock that affected compensation levels at other firms in the economy. We first show that Delaware-incorporated firms with staggered boards and no outside blockholders increased CEO compensation following the mid-1990s Delaware legal cases that strengthened their ability to resist hostile takeovers. Consistent with the Gabaix and Landier (2008) contagion hypothesis, non-Delaware firms subsequently increased CEO compensation when the rulings affected a substantial number of firms in their industries. We further show how these legal developments contributed significantly to the rapid increase in CEO compensation in the late 1990s.

Keywords: Executive compensation; Classified board; Poison pill; Delaware; Corporate governance (search for similar items in EconPapers)
JEL-codes: G30 G34 (search for similar items in EconPapers)
Date: 2013
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Citations: View citations in EconPapers (16)

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Persistent link: https://EconPapers.repec.org/RePEc:eee:jfinec:v:107:y:2013:i:2:p:477-493

DOI: 10.1016/j.jfineco.2012.09.005

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