Does Increased Labor Market Demand Affect CEO Compensation?: Evidence from a Natural Experiment

Seok-Hyun Hwang

doi:10.5465/AMBPP.2022.11109abstract

Does Increased Labor Market Demand Affect CEO Compensation? Evidence from a Natural Experiment

Seok-Hyun Hwang^*

^*Corresponding author for this work

Department of Management, Marketing and Information Systems

Research output: Chapter in book/report/conference proceeding › Conference proceeding › peer-review

Abstract

This study investigates whether and to what extent a demand increase in the CEO labor market affects CEO compensation. Prior literature has largely focused on internal determinants of CEO compensation (e.g., CEO- and firm-level factors contributing to CEO compensation); yet relatively little is known about the role of external market demand on CEO compensation. Using the sudden deaths of CEOs between 1997 and 2019 as a natural experiment that generates the positive demand shock for industry peer CEOs, I conduct coarsened exact matching combined with a difference-in-differences analysis to identify the causal effects of the sudden CEO deaths at a firm on the total compensation of industry peer CEOs. As predicted, the results show a significant increase in industry peer CEOs’ compensation following the sudden CEO deaths. I also find that this effect is stronger when an industry peer CEO has an outsider origin and holds an MBA degree. These findings contribute to the literature by identifying the role of the CEO labor market on CEO compensation.

Original language	English
Title of host publication	Academy of Management Proceedings 2022
Editors	Sonia Taneja
Publisher	Academy of Management
DOIs	https://doi.org/10.5465/AMBPP.2022.11109abstract
Publication status	Published - 6 Jul 2022
Event	82nd Annual Meeting of the Academy of Management, AOM 2022: Creating a Better World Together - Hybrid, Seattle, Washington, United States Duration: 5 Aug 2022 → 9 Aug 2022 https://aom.org/events/annual-meeting/past-annual-meetings/2022-creating-a-better-world-together (Conference website) https://journals.aom.org/toc/amproc/2022/1 (Conference proceedings) https://journals.aom.org/loi/amproc/group/d2020.y2022 (Conference Proceedings)

Publication series

Name	Academy of Management Proceedings
Publisher	Academy of Management
Number	1
Volume	2022
ISSN (Print)	0065-0668
ISSN (Electronic)	2151-6561

Conference

Conference	82nd Annual Meeting of the Academy of Management, AOM 2022
Country/Territory	United States
City	Seattle, Washington
Period	5/08/22 → 9/08/22
Internet address	https://aom.org/events/annual-meeting/past-annual-meetings/2022-creating-a-better-world-together (Conference website) https://journals.aom.org/toc/amproc/2022/1 (Conference proceedings) https://journals.aom.org/loi/amproc/group/d2020.y2022 (Conference Proceedings)

Access to Document

10.5465/AMBPP.2022.11109abstract

Cite this

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title = "Does Increased Labor Market Demand Affect CEO Compensation?: Evidence from a Natural Experiment",

abstract = "This study investigates whether and to what extent a demand increase in the CEO labor market affects CEO compensation. Prior literature has largely focused on internal determinants of CEO compensation (e.g., CEO- and firm-level factors contributing to CEO compensation); yet relatively little is known about the role of external market demand on CEO compensation. Using the sudden deaths of CEOs between 1997 and 2019 as a natural experiment that generates the positive demand shock for industry peer CEOs, I conduct coarsened exact matching combined with a difference-in-differences analysis to identify the causal effects of the sudden CEO deaths at a firm on the total compensation of industry peer CEOs. As predicted, the results show a significant increase in industry peer CEOs{\textquoteright} compensation following the sudden CEO deaths. I also find that this effect is stronger when an industry peer CEO has an outsider origin and holds an MBA degree. These findings contribute to the literature by identifying the role of the CEO labor market on CEO compensation.",

author = "Seok-Hyun Hwang",

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url = "https://aom.org/events/annual-meeting/past-annual-meetings/2022-creating-a-better-world-together, https://journals.aom.org/toc/amproc/2022/1, https://journals.aom.org/loi/amproc/group/d2020.y2022",

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Hwang, S-H 2022, Does Increased Labor Market Demand Affect CEO Compensation? Evidence from a Natural Experiment. in S Taneja (ed.), Academy of Management Proceedings 2022. Academy of Management Proceedings, no. 1, vol. 2022, Academy of Management, 82nd Annual Meeting of the Academy of Management, AOM 2022, Seattle, Washington, United States, 5/08/22. https://doi.org/10.5465/AMBPP.2022.11109abstract

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AB - This study investigates whether and to what extent a demand increase in the CEO labor market affects CEO compensation. Prior literature has largely focused on internal determinants of CEO compensation (e.g., CEO- and firm-level factors contributing to CEO compensation); yet relatively little is known about the role of external market demand on CEO compensation. Using the sudden deaths of CEOs between 1997 and 2019 as a natural experiment that generates the positive demand shock for industry peer CEOs, I conduct coarsened exact matching combined with a difference-in-differences analysis to identify the causal effects of the sudden CEO deaths at a firm on the total compensation of industry peer CEOs. As predicted, the results show a significant increase in industry peer CEOs’ compensation following the sudden CEO deaths. I also find that this effect is stronger when an industry peer CEO has an outsider origin and holds an MBA degree. These findings contribute to the literature by identifying the role of the CEO labor market on CEO compensation.

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