Abstract
We examine the equilibrium matching pattern between firms and CEOs in a cash flow diversion environment. We show that aggregate economic shock drives matching pattern by affecting the tradeoff between firm-CEO complementarity and monitoring cost. Our results explain why CEO turnover is driven by exogenous economic shock. We show Gabaix and Landier (2008)’s cross-sectional and time-series predictions on CEO compensation are valid only if positive assortative matching (PAM) holds, and empirical applications relying on PAM are generally more robust with subsamples of large firms. Our results suggest firm-CEO complementarity is not sufficient for PAM even in a unidimensional matching framework.
Sign-in/Register to access full text options 
Talk to us
Join us for a 30 min session where you can share your feedback and ask us any queries you have
Schedule a call
