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Do Higher Paid CEOs Weather The Storm Better? Evidence from the Great Recession

Do Higher Paid CEOs Weather The Storm Better? Evidence from the Great Recession. Wei-Ling Song Hsiangping Tsai Discussant: Hong-Yi Chen. Summary of this paper. CEO compensation: Pay incentive/ agency problem/ endogeniety

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Do Higher Paid CEOs Weather The Storm Better? Evidence from the Great Recession

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  1. Do Higher Paid CEOs Weather The Storm Better? Evidence from the Great Recession Wei-Ling Song Hsiangping Tsai Discussant: Hong-Yi Chen

  2. Summary of this paper • CEO compensation: • Pay incentive/ agency problem/ endogeniety Murphy (1985), Sloan (1993), Rajgopal and Shevlin (2002), Brian and Liebman (1998), Simi and Rajgopal (2008), Bergman and Jenter (2007), Oyer and Schaefer (2005), Bebchuk et al. (2011), Wei and Yermack (2011), …. • Research question • High CEO paid may indicate good CEO ability and higher agency problem. • Is excessive CEO pay is driven by unobserved CEO ability?

  3. Summary of this paper (cont.) • Excessive CEO pay: CEO pay slice (CPS) • Bebchuk et al. (2011) • Creditors value: CDS spread (or default risk) • Norden and Webber (2004), Hull and Predescu (2004), Blanco et al. (2005), etc. • Exogenous event: 2008 financial crisis (Lehman crisis) • Findings • High CEO pay slice (CPS) firms experienced lower increases in CDS spread and lower declines in firm valueduring 2008 financial crisis. • Support CEO ability hypothesis.

  4. Suggestions -1 • The liquidity of CDS market during the crisis. • The difference of CDS liquidity before and after the crisis. • Is the CDS market is rational (or efficient) during the crisis?

  5. Suggestions -2 • What did the CEO do at the date of crisis? • If the CEO did something and made CDS spread not increase much, the work can be found for further studies. • If the CEO did nothing, CDS spread was changed by other factors rather than CEO ability.

  6. Suggestions -3 • Others • May apply to other crises. • May use other compensation variables other than CPS. • The significance of CPS is marginal (1.7 – 1.9 of t-stats). • Introduction and literature review can be reduced.

  7. Conclusion • Interesting paper which • uses an exogenous event to separate effects of CEO ability and CEO agency problem from CEO payment. • gives credits for CEO ability hypothesis. • I like this paper.

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