Executive Turnover Revisited From an Efficiency Wage Perspective Academic Article uri icon

abstract

  • We develop theoretical arguments from the efficiency wage model (Shapiro & Stiglitz, 1984) to provide better understanding of Famas (1980) seminal notion that executive labor markets contribute to the alignment of executive and shareholder interests. We show how the efficiency wage model can be integrated with several other theories of executive turnover. Furthermore, the model allows for predictions that have received very little analysis to date, such as the effect of firm risk and executive salaries on turnover. We test predictions from the model on a sample of executives from 280 manufacturing firms observed annually from 1986 to 1992. Our sample includes data on over 12,000 observations and nearly 1,700 employment terminations. The results are consistent with the main predictions of the efficiency wage model. Holding performance constant, boards of directors are less patient with (more likely to dismiss) executives who have lower salaries and those in higher risk firms.

published proceedings

  • Management Research The Journal of the Iberoamerican Academy of Management

author list (cited authors)

  • Ortnngel, P., & Cannella, A. A.

citation count

  • 1

complete list of authors

  • Ortín‐Ángel, Pedro||Cannella, Albert A

publication date

  • April 2004