Hostname: page-component-78c5997874-8bhkd Total loading time: 0 Render date: 2024-11-15T08:18:43.377Z Has data issue: false hasContentIssue false
  • English
  • Français

Urban Agglomeration and CEO Compensation

Published online by Cambridge University Press:  29 December 2016

Bill B. Francis ,
Iftekhar Hasan ,
Kose John  and
Maya Waisman
Get access Rights & Permissions [Opens in a new window]

Abstract

We examine the relation between the agglomeration of firms around big cities and chief executive officer (CEO) compensation. We find a positive relation among the metropolitan size of a firm’s headquarters, the total and equity portion of its CEO’s pay, and the quality of CEO educational attainment. We also find that CEOs gradually increase their human capital in major metropolitan areas and are rewarded for this upon relocation to smaller cities. Taken together, the results suggest that urban agglomeration reflects local network spillovers and faster learning of skilled individuals, for which firms are willing to pay a premium and which are therefore important factors in CEO compensation.

Type
Research Article
Information
Journal of Financial and Quantitative Analysis , Volume 51 , Issue 6 , December 2016 , pp. 1925 - 1953
Copyright
Copyright © Michael G. Foster School of Business, University of Washington 2016 

Access options

Get access to the full version of this content by using one of the access options below. (Log in options will check for institutional or personal access. Content may require purchase if you do not have access.)

References

Almazan, A.; Motta, A. D.; Titman, S.; and Uysal, V.. “Financial Structure, Acquisition Opportunities, and Firm Locations.” Journal of Finance, 65 (2010), 529–563.Google Scholar
Audretsch, D. B., and Feldman, M. P.. “R&D Spillovers and the Geography of Innovation and Production.” American Economic Review, 86 (1996), 630–640.Google Scholar
Bacolod, M.; Blum, B. S.; and Strange, W. C.. “Skills in the City.” Journal of Urban Economics, 65 (2008), 136–153.CrossRefGoogle Scholar
Bae, K. H.; Stulz, R.; and Tan, H.. “Do Local Analysts Know More? A Cross-Country Study of the Performance of Local Analysts and Foreign Analysts.” Journal of Financial Economics, 3 (2006), 581–606.Google Scholar
Baker, M., and Gompers, P. A.. “The Determinants of Board Structure at the Initial Public Offering.” Journal of Law and Economics, 46 (2003), 569–598.Google Scholar
Bikhchandani, S.; Hirshleifer, D.; and Welch, I.. “A Theory of Fads, Fashion, Custom and Cultural Change as Informational Cascades.” Journal of Political Economy, 100 (1992), 992–1026.CrossRefGoogle Scholar
Bizjak, J.; Lemmon, M.; and Nguyen, T.. “Are All CEOs Above Average: An Empirical Examination of Compensation Peer Groups and Pay Design.” Journal of Financial Economics, 3 (2011), 538–555.CrossRefGoogle Scholar
Black, F., and Scholes, M.. “The Pricing of Options and Corporate Liabilities.” Journal of Political Economy, 81 (1973), 637–654.Google Scholar
Christoffersen, S. E. K., and Sarkissian, S.. “City Size and Fund Performance.” Journal of Financial Economics, 92 (2009), 252–275.CrossRefGoogle Scholar
Ciccone, A., and Hall, R. E.. “Productivity and the Density of Economic Activity.” American Economic Review, 86 (1996), 54–70.Google Scholar
Combes, P. P.; Duranton, G.; and Gobillon, L.. “Spatial Wage Disparities: Sorting Matters!” Journal of Urban Economics, 63 (2008), 723–742.CrossRefGoogle Scholar
Core, J. E.; Guay, W.; and Larcker, D. F.. “Executive Equity Compensation and Incentives: A Survey.” Economic Policy Review, 9 (2003), 27–50.Google Scholar
Coval, J., and Moskowitz, T.. “Home Bias at Home: Local Equity Preference in Domestic Portfolios.” Journal of Finance, 54 (1999), 2045–2073.Google Scholar
Coval, J., and Moskowitz, T.. “The Geography of Investment: Informed Trading and Asset Prices.” Journal of Political Economy, 109 (2001), 811–841.Google Scholar
Di Addario, S., and Patacchini, E.. “Wages in the Cities: Evidence from Italy.” Labor Economics, 15 (2008), 1040–1061.Google Scholar
Dougal, C.; Parsons, C. A.; and Titman, S.. “Urban Vibrancy and Corporate Growth.” Journal of Finance, 70 (2015), 163–210.Google Scholar
Duranton, G., and Puga, D.. “Microfoundations of Urban Agglomeration Economies.” In Handbook of Regional and Urban Economics, Vol. 4, Henderson, V. and Thisse, J. F., eds. Amsterdam: North Holland (2004), 2063–2117.Google Scholar
Eisfeldt, A. L., and Kuhnen, C. M.. “CEO Turnover in a Competitive Assignment Framework.” Journal of Financial Economics, 109 (2013), 351–372.Google Scholar
Engelberg, J.; Gao, P.; and Parsons, C. A.. “The Price of a CEO’s Rolodex.” Review of Financial Studies, 26 (2013), 79–114.Google Scholar
Fama, E., and French, K.. “Industry Costs of Equity.” Journal of Financial Economics, 43 (1997), 153–193.Google Scholar
Fu, S.“Smart Café Cities: Testing Human Capital Externalities in the Boston Metropolitan Area.” Journal of Urban Economics, 61 (2007), 86–111.Google Scholar
Fujita, M., and Thisse, J.. Economics of Agglomeration. Oxford, UK: Oxford University Press (2002).CrossRefGoogle Scholar
Glaeser, E. L.“Learning in Cities.” Journal of Urban Economics, 46 (1999), 254–277.Google Scholar
Glaeser, E. L.; Kolko, J.; and Saiz, A.. “Consumer City.” Journal of Economic Geography, 1 (2001), 27–50.Google Scholar
Glaeser, E. L., and Maré, D. C.. “Cities and Skills.” Journal of Labor Economics, 19 (2001), 316–342.Google Scholar
Gould, E. L.“Cities, Workers, and Wages: A Structural Analysis of the Urban Wage Premium.” Review of Economic Studies, 74 (2007), 477–506.Google Scholar
Heckman, J.“Sample Selection Bias as a Specification Error.” Econometrica, 47 (1979), 153–161.Google Scholar
Helsley, R. W., and Strange, W. C.. “Agglomeration Economies and Urban Capital Markets.” Journal of Urban Economics, 31 (1991), 96–112.Google Scholar
Henderson, J. V.; Kuncoro, A.; and Turner, M.. “Industrial Development in Cities.” Journal of Political Economy, 103 (1995), 1067–1090.CrossRefGoogle Scholar
Hong, H.; Kubik, J. D.; and Stein, J. C.. “Social Interaction and Stock-Market Participation.” Journal of Finance, 59 (2004), 137–163.CrossRefGoogle Scholar
Hong, H.; Kubik, J. D.; and Stein, J. C.. “Thy Neighbor’s Portfolio: Word-of-Mouth Effects in the Holdings and Trades of Money Managers.” Journal of Finance, 60 (2005), 2801–2824.Google Scholar
Hwang, B. H., and Kim, S.. “It Pays To Have Friends.” Journal of Financial Economics, 93 (2009), 138–158.Google Scholar
Iranzo, S.; Schivardi, F.; and Tosetti, E.. “Skill Dispersion and Firm Productivity: An Analysis with Employer-Employee Matched Data.” Journal of Labor Economics, 26 (2008), 247–285.Google Scholar
Ivković, Z., and Weisbenner, S.. “Local Does as Local Is: Information Content of the Geography of Individual Investors’ Common Stock Investments.” Journal of Finance, 60 (2005), 267–306.Google Scholar
Kedia, S., and Rajgopal, S.. “Neighborhood Matters: The Impact of Location on Broad Based Stock Option Plans.” Journal of Financial Economics, 92 (2009), 109–127.Google Scholar
Kedia, S.; Ventkatesh, P.; and Uysal, V. B.. “Geography and Acquirer Returns.” Journal of Financial Intermediation, 17 (2008), 256–275.Google Scholar
Kono, C. D.; Palmer, D.; Friedland, R.; and Zafonte, M.. “Lost in Space: The Geography of Corporate Interlocking Directorates.” American Journal of Sociology, 103 (1998), 863–911.Google Scholar
Loughran, T., and Schultz, P.. “Liquidity: Urban versus Rural Firms.” Journal of Financial Economics, 78 (2005), 341–374.CrossRefGoogle Scholar
Lucas, R. E.“On the Mechanics of Economic Development.” Journal of Monetary Economics, 22 (1988), 3–42.Google Scholar
Mace, M. Directors: Myth and Reality. Boston, MA: Harvard Business School Press (1986).Google Scholar
Malloy, C.“The Geography of Equity Analysis.” Journal of Finance, 60 (2005), 719–755.Google Scholar
Marshall, A. Principles of Economics, 8th ed. London: Macmillan (1920).Google Scholar
Massa, M.; Yasuda, A.; and Zhang, L.. “Supply Uncertainty of the Bond Investors Base and the Leverage of the Firm.” European Financial Management, 17 (2011), 619–654.Google Scholar
Milbourn, T. T.“CEO Reputation and Stock-Based Compensation.” Journal of Financial Economics, 68 (2003), 233–262.Google Scholar
Möller, J., and Haas, A.. “The Agglomeration Wage Differential Reconsidered: An Investigation Using German Micro Data 1984–1997.” In Innovation Clusters and Interregional Competition, Bröcker, J., Dohse, D., and Soltwedel, R., eds. Berlin: Springer (2003), 182–217.Google Scholar
Roback, J.“Wages, Rents, and the Quality of Life.” Journal of Political Economy, 90 (1982), 1257–1278.Google Scholar
Weber, A. F. The Growth of Cities in the Nineteenth Century, 3rd reprint. Ithaca, NY: Cornell University Press (1968).Google Scholar
Wheaton, W., and Lewis, M.. “Urban Wages and Labor Market Agglomeration.” Journal of Urban Economics, 51 (2002), 542–562.Google Scholar
Wheeler, C. H.“Search, Sorting, and Urban Agglomeration.” Journal of Labor Economics, 19 (2001), 879–899.Google Scholar
Yankow, J. J.“Why Do Cities Pay More? An Empirical Examination of Some Competing Theories of the Urban Wage Premium.” Journal of Urban Economics, 60 (2006), 139–161.Google Scholar
Yonker, S. E.“Geography and the Market for CEOs.” Management Science, forthcoming (2016).Google Scholar