Power, Luck and Ideology – Technological and Institutional Parameters of the Agency Problem for CEOs

Abstract

Abstract:The microprocessor and related technologies have transformed the information systems in the late twentieth century with profound effects on the relative power of different groups. Skott and Guy (2007) and Guy and Skott (2008) formalized one aspect of this process of power-biased technical change: firms' increased ability to monitor low-paid employees and the resulting changes in inequality and employment at the low end of the income distribution. This paper addresses power biases and income inequality at the high end. The explosion of pay to top managers is best understood, we argue, as a result of increasing volatility (uncertainty) of the general business environment and an associated intensification of the agency problem: the power of corporate executives has increased. Institutional changes --including changes in ideology and pay norms --affect power and have contributed to the explosion in executive compensation.JEL numbers: J31, O33

Financialization and the non‐financial corporation: An investigation of firm‐level investment behavior in the United States

“…These changes in the structure of NFC balance sheets have occurred simultaneous with a secular rise in firm‐level volatility. Rising firm‐level volatility has been extensively documented in the existing literature (see Comin & Phillipon, ), and has been linked, for example, to new information and communication technologies leading to shorter product life cycles (Skott & Guy, ). Figure plots demand volatility for firms in this sample, defined as the coefficient of variation in the firm‐level sales‐to‐capital ratio, where the standard deviation ( SD ) and mean are based on 5 years of lags.…”

Weaknesses of ‘wage-led growth’*

“…where g d and n + are given by (36) and (44). 12 Equation (50) captures a standard Harrodian adjustment; 13 equation (51) follows from the de…nition of k as the ratio of capital to the labor supply.…”

“…Omitted variable bias is a potential problem, too, if labor market e¤ects are excluded from the equations (section 6). The short-run correlation between capacity utilization and employment will tend to produce a negative bias in the estimate for if equation (36) describes the investment function and the employment rate is omitted from the regression.…”

The politics of top executive compensation in advanced democracies

“…Moreover, a number of studies providing evidence that firm size only explains a significantly smaller part of the variance than what has been previously assumed (Guy, , ; cf. Skott & Guy, ). Firm size varied across countries in the 1960s until the 1980s.…”