The Di¤erence That CEOs Make: An Assignment Model Approach
نویسنده
چکیده
This paper presents an assignment model of CEOs and rms. The distributions of CEO pay levels and rmsmarket values are analyzed as the competitive equilibrium of a matching market where talents, as well as CEO positions, are scarce. It is shown how the observed joint distribution of CEO pay and market value can then be used to infer the economic value of underlying ability di¤erences. The variation in CEO pay is found to be mostly due to variation in rm characteristics, whereas implied di¤erences in managerial ability are small and make relatively little di¤erence to shareholder value. The value-added of scarce CEO ability within the 1000 largest rms in the US was about $21-25 billion in 2004, of which the CEOs received about $4 billion as ability rents while the rest was capitalized into market values. This paper is based on Chapter 2 of my Ph.D. Thesis. I thank David Autor, Abhijit Banerjee, Ernesto Dal Bó, Glenn Ellison, Ben Hermalin, Bengt Holmström, Jonathan Leonard, Michael Katz, and Thomas Philippon for helpful comments, and the Yrjö Jahnsson Foundation and the Finnish Cultural Foundation for nancial support.
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