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The effect of monitoring on CEO pay practices in a matching equilibrium

Chaigneau, Pierre and Sahuguet, Nicolas (2013) The effect of monitoring on CEO pay practices in a matching equilibrium. Financial Markets Group discussion paper (DP725). Financial Markets Group, The London School of Economics and Political Science, London, UK.

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Abstract

We present a model of efficient contracting with endogenous matching and limited monitoring in which firms compete for CEOs. The model explains the association between limited monitoring and CEO pay practices such as pay-for-luck, high salaries, a low pay-performance sensitivity, and a more asymmetric pay-for-performance relation. The results are driven by the matching equilibrium: firms with different capacities for monitoring hire different types of CEOs and offer different compensation contracts. The model thus responds to some fundamental arguments of the managerial power perspective.

Item Type: Monograph (Discussion Paper)
Official URL: http://www2.lse.ac.uk/fmg/home.aspx
Additional Information: © 2013 The Authors
Divisions: Finance
Financial Markets Group
Subjects: H Social Sciences > HB Economic Theory
H Social Sciences > HG Finance
JEL classification: D - Microeconomics > D8 - Information, Knowledge, and Uncertainty > D86 - Economics of Contract: Theory
G - Financial Economics > G3 - Corporate Finance and Governance > G34 - Mergers; Acquisitions; Restructuring; Corporate Governance
M - Business Administration and Business Economics; Marketing; Accounting > M1 - Business Administration > M12 - Personnel Management
Sets: Departments > Finance
Collections > Economists Online
Research centres and groups > Financial Markets Group (FMG)
Collections > LSE Financial Markets Group (FMG) Working Papers
Date Deposited: 22 Jan 2014 16:22
Last Modified: 31 Aug 2019 23:25
URI: http://eprints.lse.ac.uk/id/eprint/55405

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