Abstract
This study investigates whether and to what extent a demand increase in the CEO labor market affects CEO compensation. Prior literature has largely focused on internal determinants of CEO compensation (e.g., CEO- and firm-level factors contributing to CEO compensation); yet relatively little is known about the role of external market demand on CEO compensation. Using the sudden deaths of CEOs between 1997 and 2019 as a natural experiment that generates the positive demand shock for industry peer CEOs, I conduct coarsened exact matching combined with a difference-in-differences analysis to identify the causal effects of the sudden CEO deaths at a firm on the total compensation of industry peer CEOs. As predicted, the results show a significant increase in industry peer CEOs’ compensation following the sudden CEO deaths. I also find that this effect is stronger when an industry peer CEO has an outsider origin and holds an MBA degree. These findings contribute to the literature by identifying the role of the CEO labor market on CEO compensation.
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