Are perks purely managerial excess?

A widespread view is that executive perks exemplify agency problems—they are a route through which managers misappropriate a firm’s surplus. Accordingly, firms with high free cash flow, operating in industries with limited investment prospects, should offer more perks, and firms subject to more external monitoring should offer fewer perks. The evidence for agency as an explanation of perks is, at best, mixed. Perks are, however, offered in situations in which they enhance managerial productivity. While we cannot rule out the occasional see front matter r 2005 Elsevier B.V. All rights reserved. .jfineco.2005.01.003 grateful to Katie Donohue for assistance in data collection on perquisites and to Severin r the airline data, and we would like to thank both for helpful comments. We also would like rliss Baldwin, Wayne Guay, Charlie Himmelberg, Bob Inman, Ulrike Malmendier, Felix ee, Paul Oyer, Reed Shuldiner, Adrian Tschoegl, Premal Vora, Joel Waldfogel, David ter Zemsky, an anonymous referee, and seminar participants at the NBER Corporate mer Institute, American Economic Association Annual Meeting, Harvard Business School ference, Harvard Business School Seminar, University of Minnesota, Philadelphia Federal versity of Chicago, and Wharton. Wulf acknowledges research support from the Reginald H. for Management Policy, Strategy and Organization at the Wharton School and Rajan thanks Science Foundation for research support. nding author. dress: [email protected] (J. Wulf).