Explicit employment contracts and CEO compensation

Wei-Ling Song, Kam Ming Wan*

*Corresponding author for this work

Research output: Contribution to journalArticleScientificpeer-review

3 Citations (Scopus)

Abstract

This study investigates the relation between the use of explicit employment agreements (EA) and CEO compensation. Overall, our findings are broadly consistent with the predictions of Klein, Crawford, and Alchian (1978) that an EA is used to induce CEOs to make firm-specific human capital investments that are vulnerable to opportunistic behavior. We determine that compensation is higher when CEOs have employment agreements that are written, longer in duration, or more explicit in terms. Additionally, such employment agreements are more likely to occur when firms have (i) externally hired CEOs, (ii) CEOs with large abnormal compensation, (iii) low investment intensity, (iv) low growth opportunities, and (v) CEOs with a short employment history with the firm.

Original languageEnglish
Peer-reviewed scientific journalJournal of corporate finance
Volume44
Pages (from-to)540-560
Number of pages21
ISSN0929-1199
DOIs
Publication statusPublished - 01.06.2017
MoE publication typeA1 Journal article - refereed

Keywords

  • 511 Economics
  • Employment contracts
  • CEO compensation
  • Contract explicitness

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