TY - JOUR
T1 - Founders versus non-founders in large companies
T2 - Financial incentives and the call for regulation
AU - Palia, Darius
AU - Ravid, S. Abraham
AU - Wang, Chia Jane
N1 - Funding Information:
Acknowledgements We thank Heitor Almeida, Ivan Brick, Kose John, Claudio Loderer, and Rangarajan Sundaram for helpful comments. We also thank seminar participants at the European Finance Association Meetings, Financial Management Association Meetings, Rutgers, NYU, and Yale School of Management’s Conference on Young Firms, and Natalia Reisel for research assistance. Palia and Ravid thank the Whit-comb Center for Research in Financial Services for financial support. A previous version of the paper was titled “The Role of Founders in Large Companies.”
PY - 2008/2
Y1 - 2008/2
N2 - This paper is intended to question some of the premises in the ever increasing calls to regulate executive pay. We focus on founders, and extend Shleifer and Vishny's (1989, Journal of Political Economy, 94, 461-488) manager-specific investments model by explicitly modeling managerial effort and pay performance sensitivity. Tests of this model on a data set of large companies, controlling for the endogeneity of managerial compensation, indicate that founders tend to be less responsive to performance incentives and generally more entrenched. At the same time, founders' led firms are more valuable, supporting our predictions. This suggests that for founders, regulation of compensation may not be very effective.
AB - This paper is intended to question some of the premises in the ever increasing calls to regulate executive pay. We focus on founders, and extend Shleifer and Vishny's (1989, Journal of Political Economy, 94, 461-488) manager-specific investments model by explicitly modeling managerial effort and pay performance sensitivity. Tests of this model on a data set of large companies, controlling for the endogeneity of managerial compensation, indicate that founders tend to be less responsive to performance incentives and generally more entrenched. At the same time, founders' led firms are more valuable, supporting our predictions. This suggests that for founders, regulation of compensation may not be very effective.
KW - Founder
KW - Management compensation
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U2 - 10.1007/s11149-007-9042-z
DO - 10.1007/s11149-007-9042-z
M3 - Article
AN - SCOPUS:37649006783
SN - 0922-680X
VL - 33
SP - 55
EP - 86
JO - Journal of Regulatory Economics
JF - Journal of Regulatory Economics
IS - 1
ER -