This paper reviews the theoretical and empirical literature on executive compensation. We start by presenting data on the level of CEO and other top executive pay over time and across firms, the changing composition of pay; and the strength of executive incentives. We compare pay in U.S. public...

This paper identifies a class of multiperiod agency problems in which the optimal contract is tractable (attainable in closed form). By modeling the noise before the action in each period, we force the contract to provide sufficient incentives state-by-state, rather than merely on average. This...

Contracts in a dynamic model must address a number of issues absent from static frameworks. Shocks to firm value may weaken the incentive effects of securities (e.g. cause options to fall out of the money), and the impact of some CEO actions may not be felt until far in the future. We derive the...

This paper presents a unified framework for understanding the determinants of both CEO incentives and total pay levels in competitive market equilibrium. It embeds a modified principal-agent problem into a talent assignment model to endogenize both elements of compensation. The model's closed...

This paper develops a simple equilibrium model of CEO pay. CEOs have different talents and are matched to firms in a competitive assignment model. In market equilibrium, a CEO's pay changes one for one with aggregate firm size, while changing much less with the size of his own firm. The model...

Does finance follow the real economy, or the other way around? This paper unites the two competing schools of thought in a general equilibrium framework. Our key result is that there are threshold effects defined by a set of deep institutional parameters (cost of financial intermediation,...

Disparity between control and ownership rights gives rise to the risk of tunneling by the controlling shareholder, and is prevalent in many emerging market economies and present in some developed countries. At the same time, international investors come from different countries whose home...

This paper proposes a simple model to study the relationship between domestic institutions - financial system, corporate governance, and property rights protection - and patterns of international capital flows. It studies conditions under which financial globalization can be a substitute for...

This paper examines the role of public governance quality in determining the composition of a country's external liabilities and the capital structure of firms. In our theory, better institutional quality tends to promote a higher share of foreign direct investment and equity investment in total...