Stock-based compensation and CEO (dis)incentives
"Stock-based compensation is the standard solution to agency problems between shareholders and managers. In a dynamic rational expectations equilibrium model with asymmetric information we show that although stock-based compensation causes managers to work harder, it also induces them to hide...
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| Format: | UnknownFormat |
| Sprache: | eng |
| Veröffentlicht: |
Cambridge, Mass.
National Bureau of Economic Research
2008
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| Schriftenreihe: | NBER working paper series
13732 |
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Tag hinzufügen | Zusammenfassung: | "Stock-based compensation is the standard solution to agency problems between shareholders and managers. In a dynamic rational expectations equilibrium model with asymmetric information we show that although stock-based compensation causes managers to work harder, it also induces them to hide any worsening of the firm's investment opportunities by following largely sub-optimal investment policies. This problem is especially severe for growth firms, whose stock prices then become over-valued while managers hide the bad news to shareholders. We find that a firm-specific compensation package based on both stock and earnings performance instead induces a combination of high effort, truth revelation and optimal investments. The model produces numerous predictions that are consistent with the empirical evidence"--National Bureau of Economic Research web site |
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| Beschreibung: | 53 S. graph. Darst. |