Cole, Rebel and Mehran, Hamid (2010): What can we learn from privately held firms about executive compensation?
Download (324kB) | Preview
This study examines executive compensation using data from two nationally representative samples of privately held U.S. corporations conducted ten years apart—in 1993 and 2003—and uses these data to test a number of hypotheses. We find that: (i) the level of executive pay at privately held firms is higher at larger firms and varies widely by industry, consistent with stylized facts about executive pay at public companies; (ii) inflation-adjusted executive pay has fallen at privately held companies, in contrast with the widely documented run-up in executive pay at large public companies; (iii) the pay-size elasticity is much larger for privately held firms than for the publicly traded firms on which previous research has almost exclusively focused; (iv) executive pay is higher at more complex organizations; (v) organizational form affects taxation, which, in turn, affects executive pay, with executives at C-corporations being paid significantly more than executives at S-corporations; (vi) executive pay is inversely related to CEO ownership; (vii) executive pay is inversely related to financial risk; and (viii) executive pay is related to a number of CEO characteristics, including age, education and gender: executive pay has a quadratic relation with CEO age, a positive relation with educational, and is significantly lower for female executives.
|Item Type:||MPRA Paper|
|Original Title:||What can we learn from privately held firms about executive compensation?|
|Keywords:||CEO; compensation; education; executive; executive pay; gender; organizational form; ownership; SSBF; taxes|
|Subjects:||H - Public Economics > H2 - Taxation, Subsidies, and Revenue > H25 - Business Taxes and Subsidies
H - Public Economics > H2 - Taxation, Subsidies, and Revenue > H24 - Personal Income and Other Nonbusiness Taxes and Subsidies
G - Financial Economics > G3 - Corporate Finance and Governance > G32 - Financing Policy ; Financial Risk and Risk Management ; Capital and Ownership Structure ; Value of Firms ; Goodwill
L - Industrial Organization > L2 - Firm Objectives, Organization, and Behavior > L26 - Entrepreneurship
M - Business Administration and Business Economics ; Marketing ; Accounting ; Personnel Economics > M1 - Business Administration > M13 - New Firms ; Startups
J - Labor and Demographic Economics > J3 - Wages, Compensation, and Labor Costs > J33 - Compensation Packages ; Payment Methods
|Depositing User:||Prof. Rebel Cole|
|Date Deposited:||02. Sep 2010 12:45|
|Last Modified:||30. Dec 2015 08:32|
Amihud, Yakov, and Baruch Lev, 1981, Risk reduction as a managerial motive for conglomerate mergers, Bell Journal of Economics 12, 605-617.
Ang, James S., Rebel A. Cole, and James Wuh Lin, 2000, Agency costs and ownership structure, The Journal of Finance 55(1), 81-106.
Baker, George P., Michael C. Jensen, and Kevin J. Murphy, 1988, Compensation and incentives: Practice vs. theory, The Journal of Finance 43, 593-616.
Barro, Jason R., and Robert J. Barro, 1990, Pay performance and turnover of bank CEOs, Journal of Labor Economics 8(4), 448-481.
Berger, Allen N. and Gregory Udell, 1995. Relationship lending and lines of credit in small firm finance. Journal of Business 68, 351-382.
Berger, Allen N., Nathan H. Miller, Raghuram G. Rajan, Jeremy C. Stein, and Mitchell A. Petersen, 2005, Does function follow organizational form? Evidence from the lending practices of large and small banks, Journal of Financial Economics 76(2), 237-269.
Bertrand, Marianne, and Kevin F. Hallock, 2001, The gender gap in top corporate jobs, Industrial and Labor Relations Review 55(1), 3-21.
Bitler, Marianne P., Tobias J. Moskowitz, and Annette Vissing-Jorgensen, 2005, Testing agency theory with entrepreneur effort and wealth, The Journal of Finance 60(2), 539-576.
Blanchflower, David G., Phillip B. Levine, and David Zimmerman. 2003. Discrimination in the small business credit market. Review of Economics and Statistics 85(4), 930-943.
Blau, Francine D., and Lawrence M. Kahn, 2006, Women’s work and wages, The New Palgrave Dictionary of Economics, Palgrave-Macmillan, forthcoming.
Bliss, Robert T. and Richard J. Rosen, 2001, Executive compensation and bank mergers, Journal of Financial Economics 61, 107-138.
Card, David, 1999, The causal effect of education on earnings, Handbook of Labor Economics, Volume 3A, Edited by Orley Ashenfelter and David Card, North-Holland, 1801-1864.
Chung, Kee H. and Stephen W. Pruitt, 1996, Executive ownership, corporate value, and executive compensation: A unifying framework, Journal of Banking & Finance 20, 1135-1159.
Cole, Rebel A., 1998, The importance of relationships to the availability of credit, Journal of Banking and Finance 22(6-8), 959-77.
Cole, Rebel A., Lawrence G. Goldberg, and Lawrence J. White, 2004, Cookie-cutter versus character: The micro structure of small business lending by large and small banks,Journal of Financial and Quantitative Analysis 39, 227-251.
Cole, Rebel A. and John D. Wolken, 1995, Financial services used by small businesses: Evidence from the 1993 National Survey of Small Business Finances, Federal Reserve Bulletin 81(7), 629-67.
Cole, Rebel A., John D. Wolken, and R. Louise Woodburn, 1996, Bank and nonbank competition for small business credit: Evidence from the 1987 and 1993 National Surveys of Small Business Finances, Federal Reserve Bulletin 82(11), 983-95.
Detragiache, Enrica, Paolo Garella, and Luigi Guiso, 2000, Multiple versus single banking relationships: Theory and evidence, The Journal of Finance 55(3), 1133-1161.
Fama, Eugene J., 1980, Agency problems and the theory of the firm, Journal of Political Economy 99, 288-307.
Guenther, David A., 1992, Taxes and organizational form: A comparison of corporations and master limited partnerships, Accounting Review 67, 17-45.
Hallock, Kevin F. and Kevin J. Murphy, 1999, The Economics of Executive Compensation V. I & II, Elgar Reference Collection, International Library of Critical Writings in Economics, Cheltenham, UK: Edward Elgar Publishing.
Huberman, Gur and Jiang Wei, 2006, Offering versus choice in 401(k) plans: Equity exposure and number of funds, The Journal of Finance 61, 763-802.
Jensen, Michael C. and William H. Meckling, 1976, Theory of the firm: Managerial behavior, agency costs and ownership structure, Journal of Financial Economics 3, 305-360.
Jensen, Michael C. and Kevin J. Murphy, 1990, Performance pay and top-management incentives, Journal of Political Economy 98, 225-264.
Lazear, Edward, 1976, Age, experience and wage growth, American Economic Review 66, 548-558.
Loderer, Claudio F. and Urs Waelchli, 2006, Protecting Minority Investors: Listed versus Unlisted Firms, (August 23). ECGI - Finance Working Paper No. 133.
Main, Brian G., Charles A. O’Reilly and James Wade, 1993, Top executive pay: Tournament or teamwork? Journal of Labor Economics 11(4), 606-628.
Mayers, David and Clifford W. Smith, 1992, Executive compensation in the life insurance industry, Journal of Business 65(1),51-74.
Mehran, Hamid, and Michael Suher, 2008, The effect of organizational form on the structure of the banking industry, Working paper, Federal Reserve Bank of New York.
Miller, Merton H. and Myron S. Scholes, 1982, Executive compensation, taxes, and incentives, in Financial Economics: Essays in Honor of Paul Cootner, 179-201, edited by William Sharpe and Catherine Cootner (Prentice Hall, Englewood Cliffs, NJ).
Moskowitz, Tobias J. and Annette Vissing-Jorgensen, 2002, The returns to entrepreneurial investment: A private equity premium puzzle, The American Economic Review 92(4), 745-778.
Murphy, Kevin J., 1985, Corporate performance and managerial remuneration: An empirical analysis, Journal of Accounting and Economics 7, 11-42.
Murphy, Kevin J., 1986, The determinants of executive compensation: Are managers entrepreneurs? Working paper, University of Rochester.
Murphy, Kevin J., 1999, Executive Compensation, in Handbook of Labor Economics, Vol. 3, edited by Orley Ashenfelter and David Card (North-Holland).
Murphy, Kevin M. and Finis Welch, 1990, Empirical age-earnings profiles, Journal of Labor Economics 8, 202-229 Petersen, Mitchell A. and Raghuram G. Rajan, 1994, The benefits of lending relationships: Evidence from small business data, The Journal of Finance 49(1), 3-37.
Petersen, Mitchell A. and Raghuram G. Rajan, 1995, The Effect of Credit Market Competition on Lending Relationships, Quarterly Journal of Economics 110(2), 407-43.
Petersen, Mitchell A. and Raghuram G. Rajan, 1997, Trade credit: Theories and evidence, Review of Financial Studies 10(3), 661-91.
Petersen, Mitchell and Raghuram Rajan, 2002, Does distance still matter: The information revolution in small business lending, The Journal of Finance 57(6), 2533-2570.
Rice, Tara, and Philip E. Strahan, 2010, Does credit supply affect small-firm finance? The Journal of Finance, forthcoming.
Rosen, Sherwin, 1982, Authority, control, and the distribution of earnings, Bell Journal of Economics 13, 311-323.
Smith, Clifford W. and Ross L. Watts, 1992, The investment opportunity set and corporate financing, dividend, and compensation policies, Journal of Financial Economics 32, 263-292.
Scholes, Myron S. and Mark A. Wolfson, 1989, Issues in the theory of optimal capital structure, in Frontiers of Modern Financial Theory, edited by Sudipto Bhattacharya and George M. Constantinides, 49-74 (Rowman & Littlefield, Totowa, NJ).
Scholes, Myron S. and Mark A. Wolfson, 1992, Taxes and Business Strategy (Prentice Hall, Englewood Cliffs, New Jersey).
Weiss, Yoram, 1986, The determination of life cycle earnings: A survey, Handbook of Labor Economics, Volume 1, Edited by Orley Ashenfelter and Richard Layard, North-Holland, 603-640.
White, Halbert, 1980, A heteroskedasticity-consistent covariance matrix estimator and a direct test for heteroskedasticity, Econometrica 48, 817-838.
Available Versions of this Item
- What can we learn from privately held firms about executive compensation? (deposited 02. Sep 2010 12:45) [Currently Displayed]