Section 4 contains a discussion of these results. Section 5 explores the role
of managerial discretion, and Section 6 concludes.
2 Empirical Study
2.1 Data
Our primary data sources are the Center of Security Prices (CRSP) monthly
stocks database,3 the Compustat database, and the Standard and Poor’s Ex-
ecucomp Database. Security prices and stock returns are taken from CRSP
and accounting data are from Compustat. Additionally, we use the Exe-
cucomp data to gather information on shareholdings of the highest paid
executives in each firm.4
Execucomp provides information on the highest paid officers for each
firm that has been in the S&P 1500 index since the end of 1994. For S&P
500 firms, the history goes back to 1992. Execucomp backfills data of firms
that enter the S&P 1500 index for the first time. As a result, using the
entire Execucomp database would create a survivorship bias. To avoid this
problem, we limit ourselves to those firms that were members of the historical
constituency lists of the S&P 500 and the S&P 1500 for the end of each year
as taken from Compustat. Compustat provides the constituency lists for the
S&P 1500 index for the end of each year starting in 1994. Our data ends in
2003. We also employ subsamples where we only examine S&P 500 firms. In
3 Source: CRSPTM , Center for Research in Security Prices. Graduate School of Business,
The University of Chicago. Used with permission. All rights reserved (crsp.uchicago.edu).
4This is usually the CEO. In rare cases, the highest paid executive is not the CEO. In
order to avoid confusion and complexity of expressions, we use the term owner CEO and
owner manager as synonyms for the officer with the highest fraction of firm ownership.