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Market-Based Solutions to Vital Economic Issues
Research
Jan 11, 2018

CEO Compensation and Real Estate Prices: Pay for Luck and Responses to Luck

Abstract

We use changes in real estate prices to study the sensitivity of CEO compensation to luck and to responses to luck. Pay for luck can be optimal when CEOs are expected to react to luck. To identify responses to luck we rely on the fact that accounting performance, unlike market performance, only reflects changes to real estate prices if the CEO responds to the real estate shocks. We show that CEO compensation is linked to responses to real estate luck, which can partially explain pay for luck.

Note: Research papers posted on SSRN, including any findings, may differ from the final version chosen for publication in academic journals.

 


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