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Testing the Participation Constraint in the Executive Labour Market
Author(s) -
GregorySmith Ian,
Main Brian G. M.
Publication year - 2016
Publication title -
scottish journal of political economy
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 0.4
H-Index - 46
eISSN - 1467-9485
pISSN - 0036-9292
DOI - 10.1111/sjpe.12102
Subject(s) - constraint (computer aided design) , agency (philosophy) , promotion (chess) , power (physics) , perspective (graphical) , business , executive compensation , labour economics , principal–agent problem , economics , panel data , finance , corporate governance , politics , law , sociology , political science , social science , mechanical engineering , physics , quantum mechanics , artificial intelligence , computer science , engineering , econometrics
This paper tests the participation constraint by examining the workings of the executive labour market in a panel of UK listed companies over a period of 14 years. Directors are found to move jobs regularly – both within companies and between companies. Consistent with agency theory, directors who are underpaid relative to their comparable peers are particularly likely to leave for higher paying jobs in other companies. Those who move between companies secure more favourable terms than those who move within their firm – even when the move does not involve promotion, calling into question the managerial power perspective of this area of employment.