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This paper presents a contracting model of governance based on the premise that CEOs are the main promoters of governance change. CEOs use their power to extract higher pay or private benefits, and different governance structures are preferred by different CEOs as they favor one or the other type of compensation.
The model explains why good country- wide investor protection breeds good firm governance and predicts a race to the top in firm-governance quality after the Sarbanes-Oxley Act. However, such governance changes may be associated with higher rather than lower CEO pay as CEOs substitute away from private benefits. The model also provides an explanation for the observed correlation of CEO pay and firm governance as driven by CEO power.
Recent research shows that a high wage gap between managers and workers identifies better-performing firms, but the stock market does not seem to price...
We document a new channel through which a firm’s sustainability policies can contribute positively to its bottom line, by reducing labor costs and by...
We document that, over the last decade, the cross-sectional variation in CEO pay levels has declined precipitously, both at the economy level and within...