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Publication year
Has Moral Hazard Become a More Important Factor in Managerial Compensation?
Resource type
Authors/contributors
- Gayle, George-Levi (Author)
- Miller, Robert A. (Author)
Title
Has Moral Hazard Become a More Important Factor in Managerial Compensation?
Abstract
We estimate a principal-agent model of moral hazard with longitudinal dataon firms and managerial compensation over two disjoint periods spanning 60years to investigate increased value and variability in managerial compensation.We find exogenous growth in firm size largely explains these seculartrends in compensation. In our framework, exogenous firm size works throughtwo channels. First, conflicts of interest between shareholders and managersare magnified in large firms, so optimal compensation plans are now moreclosely linked to insider wealth. Second, the market for managers has becomemore differentiated, increasing the premium paid to managers of large versussmall firms. (JEL D82, L25, M12, M52)
Publication
American Economic Review
Volume
99
Issue
5
Pages
1740-69
Date
2009-12
Citation
Gayle, G.-L., & Miller, R. A. (2009). Has Moral Hazard Become a More Important Factor in Managerial Compensation? American Economic Review, 99, 1740–1769.
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