Explicit employment contracts and CEO compensation

Wei Ling Song; Kam Ming Wan

doi:10.1016/j.jcorpfin.2014.11.002

Explicit employment contracts and CEO compensation

Wei Ling Song, Kam Ming Wan

Research output: Journal article publication › Journal article › Academic research › peer-review

8 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 language	English
Pages (from-to)	540-560
Number of pages	21
Journal	Journal of Corporate Finance
Volume	44
DOIs	https://doi.org/10.1016/j.jcorpfin.2014.11.002
Publication status	Published - 1 Jun 2017

Keywords

CEO compensation
Contract explicitness
Employment contracts

ASJC Scopus subject areas

Business and International Management
Finance
Economics and Econometrics
Strategy and Management

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10.1016/j.jcorpfin.2014.11.002

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Explicit employment contracts and CEO compensation

Abstract

Keywords

ASJC Scopus subject areas

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