PEDRO ORTÍN-ÁNGEL (Universidad Autónoma de Barcelona), ALBERT A. CANNELLA JR.

TOP EXECUTIVE TURNOVER REVISITED FROM AN EFFICIENCY WAGE PERSPECTIVE

We develop theoretical arguments from the efficiency wage model (Shapiro & Stiglitz, 1984) in order to better understand Fama’s (1980) seminal notion that executive labor markets contribute to the alignment of manager and shareholder interests. The model can be integrated with most theories and empirical evidence concerning top executive turnover. It allows for predictions regarding relationships that until now have received very little analysis, such as the effect of firm risk and management salaries on top executive turnover or the analysis of the consequences that employment termination would have on leaving managers. We test the implications of the model on a sample of executives from 280 manufacturing firms observed annually between 1986 and 1992. Our sample includes data on over 12,000 observations and nearly 1,700 employment terminations. The results are consistent with the main predictions of efficiency wage models. With equal performance, boards of directors are less patient (greater probabilities of dismissal) with managers on lower salaries and in higher risk firms. Meanwhile, managers who leave their posts generally suffer penalization in their professional careers at listed companies.

Session: 3d   Room 2003   Category: Labour market dynamics 1

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