CEO-Firm Match and Principal-Agent Problem

Masako Ueda and Fei Li

No 5119, CEPR Discussion Papers from C.E.P.R. Discussion Papers

Abstract: We study the implication of the standard principal-agent theory developed by Holmstrom and Milgrom (1987) on the endogenous matching of CEO and firm. We show that a CEO with low disutility of effort, low risk aversion, or both should manage a safer firm in the matching equilibrium, and that a CEO in a safer firm should receive a higher compensation than average. Nevertheless, these predictions are not supported by data; proxies for low disutility such as educational achievement and experience are either not related to firm risks or significantly related but in the direction opposite to that predicted by the theory. CEOs of safer firms are paid less than average, again contrary to the standard principal-agent theory.

Keywords: Principal-agent problem; Sorting (search for similar items in EconPapers)
JEL-codes: G39 (search for similar items in EconPapers)
Date: 2005-07
New Economics Papers: this item is included in nep-bec, nep-cfn, nep-fin, nep-fmk, nep-lab and nep-mic
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (3)

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