On January 15th from 12:00 to 13.00 Bo Hu, from the Vrije Universiteit, Amsterdam, will give a seminar on "Managerial Labor Market Competition and Incentive Contracts".

The event will take place in room B, first floor, building B.

Abstract:

This paper assesses the impact of managerial labor market competition on executive incentive contracts. I develop a dynamic contracting framework that embeds the moral hazard problem into an equilibrium search environment. The competition for executives increases total compensation and generates a new source of incentives, called labor market incentives, which substitutes for performance-based incentives (e.g. bonus, stocks, options, etc.). The model is estimated using a newly assembled dataset on executive turnovers from U.S. publicly listed firms. My structural estimates show that the model is capable of explaining and predicting the empirical puzzles that executives of larger firms experience higher compensation growth and receive higher performance-based incentives.