Market Forces and CEO Pay: Shocks to CEO Demand Induced by IPO Waves

Jordan Nickerson

The Review of Financial Studies, 2017, vol. 30, issue 7, 2272-2312

Abstract: I develop a simple competitive equilibrium model and derive the prediction that CEO pay-size elasticity increases when more firms compete for an inelastic supply of managers. Using industry-level IPO waves as a proxy for increased competition for CEOs, I find that pay-size elasticity increases by 6% with a one-standard-deviation increase in IPO activity. This effect is stronger in specialized industries. In addition, increased IPO activity leads to a greater likelihood of executive transitions between firms. These findings indicate that market forces play a key role in the determination of CEO pay.Received August 6, 2015; editorial decision September 24, 2016 by Editor Francesca Cornelli.

JEL-codes: J23 J24 J31 J42 M12 (search for similar items in EconPapers)
Date: 2017
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