CEO ability, pay, and firm performance

Chang, Yuk Ying and Dasgupta, Sudipto and Hilary, Gilles (2010) CEO ability, pay, and firm performance. Management Science, 56 (10). pp. 1633-1652. ISSN 0025-1909

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Abstract

Do chief executive officers (CEOs) really matter? Do cross-sectional differences in firm performance and CEO pay reflect differences in CEO ability? Examining CEO departures over 1992–2002, we first find that the stock price reaction upon departure is negatively related to the firm's prior performance and to the CEO's prior pay. Second, the CEO's subsequent labor market success is greater if the firm's predeparture performance is better, the prior pay is higher, and the stock market's reaction is more negative. Finally, better prior performance, higher prior pay, and a more negative stock market reaction are associated with worse postdeparture firm performance. Collectively, these results reject the view that differences in firm performance stem entirely from non-CEO factors such as the firms' assets, other employees, or “luck,” and that CEO pay is unrelated to the CEO's contribution to firm value.

Item Type:
Journal Article
Journal or Publication Title:
Management Science
Uncontrolled Keywords:
/dk/atira/pure/subjectarea/asjc/1800/1803
Subjects:
ID Code:
74546
Deposited By:
Deposited On:
08 Jul 2015 12:30
Refereed?:
Yes
Published?:
Published
Last Modified:
16 Nov 2020 06:04