TY  - JOUR
AU  - Bertrand,Marianne
AU  - Mullainathan,Sendhil
TI  - Executive Compensation and Incentives:  The Impact of Takeover Legislation
JF  - National Bureau of Economic Research Working Paper Series
VL  - No. 6830
PY  - 1998
Y2  - December 1998
UR  - http://www.nber.org/papers/w6830
L1  - http://www.nber.org/papers/w6830.pdf
N1  - Author contact info:
Marianne Bertrand
Booth School of Business
University of Chicago
5807 South Woodlawn Avenue
Chicago, IL  60637
Tel: 773/834-5943
Fax: 773/702-0458
E-Mail: marianne.bertrand@chicagobooth.edu

Sendhil Mullainathan
Department of Economics
Littauer M-18
Harvard University
Cambridge, MA  02138
Tel: 617/496-2720
Fax: 617/495-7730
E-Mail: mullain@fas.harvard.edu
AB  - We investigate the impact of changes in states' anti-takeover legislation on executive compensation.  We find both pay for performance sensitivities and mean pay increase for the firms affected by the legislation (relative to a control group).  These findings are partially consistent with an optimal contracting model of CEO pay as well as with a skimming model in which reduced takeover fears allow CEO's to skim more.  We compute lower bounds on the relative risk aversion coefficients implied by our findings.  These lower bounds are relatively high, indicating that the increase in mean pay may have been more than needed to maintain CEO's individual rationality constraints. Under both models however, our evidence shows that the increased pay for performance offsets some of the incentive reduction caused by lower takeover threats.
ER  -