I develop a simple competitive equilibrium model and derive the prediction that CEO pay-size elasticity increases when more firms compete for an inelastic supply of managers. Using industry-level IPO waves as a proxy for increased competition for CEOs, I find that pay-size elasticity increases by 6% with a one-standard-deviation increase in IPO activity. This effect is stronger in specialized industries. In addition, increased IPO activity leads to a greater likelihood of executive transitions between firms. These findings indicate that market forces play a key role in the determination of CEO pay. Received August 6, 2015; editorial decision September 24, 2016 by Editor Francesca Cornelli.

I develop a simple competitive equilibrium model and derive the prediction that CEO pay-size elasticity increases when more firms compete for an inelastic supply of managers. Using industry-level IPO waves as a proxy for increased competition for CEOs, I find that pay-size elasticity increases by 6% with a one-standard-deviation increase in IPO activity. This effect is stronger in specialized industries. In addition, increased IPO activity leads to a greater likelihood of executive transitions between firms. These findings indicate that market forces play a key role in the determination of CEO pay.

This paper proposes several frameworks to estimate the appropriate default correlations for structured products, each of which jointly considers the role of co-movements in modeled risk characteristics and unmodeled systematic risk, or ‘frailty.’ We contrast our estimates with credit rating agencies’ default correlation assumptions, which were only 0.01 for Collateralized Loan Obligations (CLOs) pre-crisis and have increased to 0.03 post-crisis. In contrast, the joint consideration of observable risk factors and frailty leads to substantially higher estimates of 0.12. We show that this translates into CLOs with credit risk understated by 26%, suggesting caution for the post-crisis structured finance market.