Executive Compensation and other Managerial Incentives Summer School
Aims
This course surveys leading academic research in executive compensation and related areas of managerial incentives, such as stock ownership, insider trading, the threat of replacement, and the private benefits of control.
Information
This course surveys leading academic research in executive compensation and related areas of managerial incentives, such as stock ownership, insider trading, the threat of replacement, and the private benefits of control. The material will be presented in an interdisciplinary framework, integrating issues arising in economics, finance, accounting, and law. Lectures will focus on published academic papers but will also highlight the importance of the course topics in real-world business settings.
Materials
The reading list for the course appears below. We will follow an approximate schedule of covering two sections of the reading list each day. The most important papers in each section are marked with asterisks (**), and I recommend that you read these papers carefully in advance of the class meetings.
- Overview
** E. Fama, “Agency problems and the theory of the firm,” Journal of Political Economy 88, 288-307 (1980).
E. Lazear and S. Rosen, “Rank-order tournaments as optimum labor contracts,” Journal of Political Economy 89, 841-864 (1981).
M. Jensen and K. Murphy, “Performance pay and top-management incentives,” Journal of Political Economy 98, 225-264 (1990).
K. Murphy, “Executive compensation: Where we are, and how we got there,” in G. Constantinides, M. Harris, and R. Stulz eds., Handbook of the Economics of Finance (forthcoming).
2. Problems and controversies with incentive compensation
** P. Healy, “The effect of bonus schemes on accounting decisions,” Journal of Accounting and Economics 7, 85-107 (1985).
** R. Mørck, A. Shleifer, and R. Vishny, "Management ownership and market valuation: An empirical analysis,” Journal of Financial Economics 20, 293-315 (1988).
E. Ofek and D. Yermack, “Taking stock: Equity-based compensation and the evolution of managerial ownership,” Journal of Finance 55, 1367-1384 (2000).
D. Yermack, “Flights of fancy: Corporate jets, CEO perquisites, and inferior shareholder returns,” Journal of Financial Economics 80, 211-242 (2006).
R. Heron and E. Lie, “Does backdating explain the stock price pattern around executive stock option grants?” Journal of Financial Economics 83, 271-295 (2007).
R. Sundaram and D. Yermack, “Pay me later: Inside debt and its role in managerial compensation,” Journal of Finance 62, 1551-1588 (2007).
J. Engelberg, P. Gao, and C. Parsons, “The price of a CEO’s rolodex,” Review of Financial Studies 26, 79-114 (2013).
S. Van Bekkum, “Inside debt and enterprise-wide bank risk,” Journal of Financial and Quantitative Analysis 51, 359-385 (2016).
3. Insider trading and its relation to executive compensation
D. Carlton and D. Fischel, “The regulation of insider trading,” Stanford Law Review 35, 857-895 (1983).
L. Meulbroek, “An empirical analysis of illegal insider trading,” Journal of Finance 47, 1661-1699 (1992).
** C. Bettis, J. Coles, and M. Lemmon, “Corporate policies restricting trading by insiders,” Journal of Financial Economics 57, 191-220 (2000).
D. Roulstone, “The relation between insider-trading restrictions and executive compensation,” Journal of Accounting Research 41, 525-551 (2003).
D. Yermack, “Deductio’ ad absurdum: CEOs donating their own stock to their own family foundations,” Journal of Financial Economics 94, 107-123 (2009).
D. Denis and J. Xu, “Insider trading restrictions and top executive compensation,” Journal of Accounting and Economics 56, 91-112 (2013).
4. Controlling shareholders, including family firms
H. Demsetz and K. Lehn, “The structure of corporate ownership: Causes and consequences,” Journal of Political Economy 93, 1155-1177 (1985).
W. Johnson, R. Magee, N. Nagarajan, and H. Newman, “An analysis of the stock price reaction to sudden executive deaths: Implications for the managerial labor market,” Journal of Accounting and Economics 7, 151-174 (1985).
R. Anderson and D. Reeb, “Founding-family ownership and firm performance: Evidence from the S&P 500,” Journal of Finance 58, 1301-1328 (2003).
** A. Dyck and L. Zingales, “Private benefits of control: An international comparison,” Journal of Finance 59, 537-600 (2004).
** M. Bennedsen, K. Nielsen, F. Perez-Gonzalez, and D. Wolfenzon, “Inside the family firm: The role of families in succession decisions and performance,” Quarterly Journal of Economics 122, 647-691 (2007).
A. Ellul, M. Pagano, and F. Panunzi, “Inheritence law and investment in family firms,” American Economic Review 100, 2414-2450 (2010).
P. Gompers, J. Ishii, and A. Metrick, “Extreme governance: An analysis of dual-class firms in the United States,” Review of Financial Studies 23, 1051-1088 (2010).
M. Bennedsen and L. Van der Heyden, “When MBAs meet Henokiens: What can we learn from long-lived family firms?” Unpublished manuscript (2010).
P. Bunkanwanicha, J. Fan, and Y. Wiwattanakantang, “The value of marriage to family firms,” Journal of Financial and Quantitative Analysis 48, 611-636 (2013).
V. Mehrotra, R. Morck, J. Shim, and Y. Wiwattanakantang, “Adoptive expectations: Rising sons in Japanese family firms,” Journal of Financial Economics 108, 840-854 (2013).
5. CEO replacement, severance, and golden parachutes
J. Warner, R. Watts, and K. Wruck, “Stock prices and top management changes,” Journal of Financial Economics 20, 461-492 (1988).
** R. Hayes and S. Schaefer, “How much are differences in managerial ability worth?” Journal of Accounting and Economics 27, 125-148 (1999).
M. Huson, R. Parrino, and L. Starks, “Internal monitoring mechanisms and CEO turnovers: A long-term perspective,” Journal of Finance 56, 2265-2297 (2001).
J. Hartzell, E. Ofek, and D. Yermack, “What’s in it for me? CEOs whose firms are acquired,” Review of Financial Studies 17, 37-61 (2004).
L. Naveen, “Organizational complexity and succession planning,” Journal of Financial and Quantitative Analysis (2006).
D. Yermack, “Golden handshakes: Rewards for CEOs who leave,” Journal of Accounting and Economics 41, 237-256 (2006).
** J. Cai and A. Vijh, “Incentive effects of stock and option holdings of target and acquirer CEOs,” Journal of Finance 62, 1891-1933 (2007).
B. Nguyen and K. Nielsen, “What death can tell: Are executives paid for their contributions to firm value?” Management Science 60, 2994-3010 (2014).
F. Peters and A. Wagner, “The executive turnover risk premium,” Journal of Finance 69, 1529-1563 (2014).
6. Disclosure and regulation
Rogers v. Hill et al., 289 U.S. 582 (1933).
N. Burns and S. Kedia, “The impact of performance-based compensation on misreporting,” Journal of Financial Economics 79, 35-76 (2006).
** S. Kedia and T, Philippon, “The economics of fraudulent accounting,” Review of Financial Studies 22, 2169-2199 (2009)
** K. Murphy and T. Sandino, “Executive pay and ‘independent’ compensation consultants,” Journal of Accounting and Economics 49, 247-262 (2010).
J. Cai and R. Walkling, “Shareholders’ say on pay: Does it create value?” Journal of Financial and Quantitative Analysis 46, 299-339 (2011).
C. Kuhnen and A. Niessen, “Public opinion and executive compensation,” Management Science 58, 1249-1272 (2012).
F. Ferri and D. Maber, “Say on Pay votes and CEO compensation: Evidence from the UK,” Review of Finance 17, 527-563 (2013).
D, Yermack, “Tailspotting: Identifying and profiting from CEO vacation trips,” Journal of Financial Economics 113, 252-269 (2014).
** A. Call, S. Kedia, and S. Rajgopal, “Rank and file employees and the discovery of misreporting: The role of stock options,” Journal of Accounting and Economics, forthcoming.
Additional info
For the timetable of this course, please click here.
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To register, ERIM participants can take the following steps:
1. Go to SIN Online and log in with your ERNA credentials if required.
2. Click in the checkbox next to the course title and click Save Changes.
3. Your registration is complete. You will receive an automatic confirmation e-mail.
External (non-ERIM) participants are welcome to this course. To register, please fill in the registration form and e-mail it to summerschool@erim.eur.nl by 4 weeks prior to the start of the course. Please note that the number of places for this course is limited.
This course is free of charge for ERIM members (faculty members, PhD candidates and Research Master students). For external participants, the course fee is 250 euro per ECTS credit.
