Please use this identifier to cite or link to this item: http://hdl.handle.net/10397/89202
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Title: CEO expertise and the design of compensation contracts : evidence from generalist versus specialist CEOs
Authors: Liu, C
Shi, W
Wei, KCJ 
Issue Date: 2021
Source: Journal of management accounting research, 2021, v. 33, no. 3, p. 97-119
Abstract: Generalist CEOs receive higher pay than specialist CEOs. We examine the implications of CEO expertise for the structure of executive compensation. We follow contract theory and predict that information asymmetry induces generalist CEOs to overstate their ability to a larger extent when contracting with shareholders. Boards of directors take this into account by designing compensation contracts that link their pay more closely to firm performance. Our empirical results support this prediction, and the link is more pronounced when generalist CEOs are less known in the executive labor market or are hired externally. The results hold after we control for a battery of factors that potentially affect incentive pay, including firm characteristics and CEO ability. Overall, our results support the optimal contracting perspective of executive compensation and highlight the importance of CEO expertise generality in resolving adverse selection during the contracting process.
Publisher: American Accounting Association
Journal: Journal of management accounting research 
ISSN: 1049-2127
DOI: 10.2308/JMAR-19-019
Rights: This is the accepted version of the publication Liu, C., Shi, W., & Wei, K. J. (2021). CEO Expertise and the Design of Compensation Contracts: Evidence from Generalist versus Specialist CEOs. Journal of Management Accounting Research, 33(3), 97-119. The final published version of record is available at https://dx.doi.org/10.2308/JMAR-19-019
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