Research output: Contribution to Journal/Magazine › Journal article › peer-review
Research output: Contribution to Journal/Magazine › Journal article › peer-review
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TY - JOUR
T1 - CEO ability, pay, and firm performance
AU - Chang, Yuk Ying
AU - Dasgupta, Sudipto
AU - Hilary, Gilles
PY - 2010/10/10
Y1 - 2010/10/10
N2 - 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.
AB - 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.
KW - CEO ability
KW - CEO pay
KW - managerial labor market;
KW - firm performance
U2 - 10.1287/mnsc.1100.1205
DO - 10.1287/mnsc.1100.1205
M3 - Journal article
VL - 56
SP - 1633
EP - 1652
JO - Management Science
JF - Management Science
SN - 0025-1909
IS - 10
ER -