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Journal of Finance

Do Entrenched Managers Pay Their Workers More?

Scientific Article in English
Reference
Cronqvist, Henrik, Fredrik Heyman, Mattias Nilsson, Helena Svaleryd and Jonas Vlachos (2009). “Do Entrenched Managers Pay Their Workers More?”. Journal of Finance 64(1), 309–339. doi.org/10.1111/j.1540-6261.2008.01435.x

Authors
Henrik Cronqvist, Fredrik Heyman, Mattias Nilsson, Helena Svaleryd, Jonas Vlachos

Analyzing a panel that matches public firms with worker-level data, we find that managerial entrenchment affects workers’ pay. CEOs with more control pay their workers more, but financial incentives through cash f low rights ownership mitigate such behavior. Entrenched CEOs pay more to employees closer to them in the corporate hierarchy, geographically closer to the headquarters, and associated with conf lict-inclined unions. The evidence is consistent with entrenched CEOs paying more to enjoy private benefits such as lower effort wage bargaining and improved social relations with employees. Our results show that managerial ownership and corporate governance can play an important role for employee compensation.