Author ' s personal copy Stock trading , information production , and executive incentives
نویسندگان
چکیده
Article history: Received 27 October 2007 Received in revised form 18 June 2008 Accepted 18 June 2008 Available online 26 June 2008 This paper investigates the effect of stock market microstructure on managerial compensation schemes. We propose and empirically demonstrate that the sensitivity of chief executive officer's (CEO's) compensations to changes in stockholders' value is higher when the stock market facilitates the production and aggregation of private or public information. Using stock trading data and analysts' earnings forecast data, we construct five different measures of the information content in stock prices. These measures, separately and jointly, account for the cross-sectional variations in CEO pay-performance sensitivity well. Our results are robust to the choice of samples, incentive measures, model specifications, and estimation methods. We extend the analysis to non-CEO executives and executive teams and find similar results. © 2008 Elsevier B.V. All rights reserved. JEL classification: D80 G14 G34 J33
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