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Contractual Managerial Incentives With Stock Price Feedback
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Book Synopsis Contractual Managerial Incentives with Stock Price Feedback by : Tse-Chun Lin
Download or read book Contractual Managerial Incentives with Stock Price Feedback written by Tse-Chun Lin and published by . This book was released on 2019 with total page 44 pages. Available in PDF, EPUB and Kindle. Book excerpt: We study the effect of financial market frictions on managerial compensation. We embed a market microstructure model into an otherwise standard contracting framework, and analyze optimal pay-for-performance when managers use information they learn from the market in their investment decisions. In a less frictional market, the improved information content of stock prices helps guide managerial decisions and thereby necessitates lower-powered compensation. Exploiting a randomized experiment, we document evidence that pay-for-performance is lowered in response to reduced market frictions. Firm investment also becomes more sensitive to stock prices during the experiment, consistent with increased managerial learning from the market.
Book Synopsis Managerial Incentives and Stock Price Manipulation by : Lin Peng
Download or read book Managerial Incentives and Stock Price Manipulation written by Lin Peng and published by . This book was released on 2014 with total page 62 pages. Available in PDF, EPUB and Kindle. Book excerpt: We present a rational expectations model of optimal executive compensation in a setting where managers are in a position to manipulate short-term stock prices and the manipulation propensity is uncertain. We analyze the tradeoffs involved in conditioning pay on long- versus short-term performance and show how manipulation, and investorsņuncertainty about it, affects the equilibrium pay contract and the informativeness of prices. Firm and manager characteristics determine the optimal compensation scheme: the strength of incentives, the pay horizon, and the use of options. We consider how corporate governance and disclosure regulations can help create an environment that enables better contracting.
Book Synopsis Contracting with Feedback by : Tse-chun Lin
Download or read book Contracting with Feedback written by Tse-chun Lin and published by . This book was released on 2015 with total page pages. Available in PDF, EPUB and Kindle. Book excerpt:
Book Synopsis Managerial Incentives and Stock Price Manipulation by : Lin Peng
Download or read book Managerial Incentives and Stock Price Manipulation written by Lin Peng and published by . This book was released on 2009 with total page 0 pages. Available in PDF, EPUB and Kindle. Book excerpt: This paper presents a rational expectations model of optimal executive compensation in a setting where managers are in a position to manipulate short-term stock prices, and managers' propensity to manipulate is uncertain. Stock-based incentives elicit not only productive effort, but also costly information manipulation. We analyze the tradeoffs involved in conditioning pay on long- versus short-term performance and characterize a second-best optimal compensation scheme. The paper shows manipulation, and investors' uncertainty about it, affects the equilibrium pay contract and the informational efficiency of asset prices. The paper derives a range of new cross-sectional comparative static results and sheds light on corporate governance regulations.
Book Synopsis Managerial Incentives and Stock Price Manipulation by : Lin Peng
Download or read book Managerial Incentives and Stock Price Manipulation written by Lin Peng and published by . This book was released on 2009 with total page 48 pages. Available in PDF, EPUB and Kindle. Book excerpt: This paper presents a rational expectations model of optimal executive compensation in a setting where managers are in a position to manipulate short-term stock prices, and managers' propensity to manipulate is uncertain. Stock-based incentives elicit not only productive effort, but also costly information manipulation. We analyze the tradeoffs involved in conditioning pay on long- versus short-term performance and characterize a second-best optimal compensation scheme. The paper shows manipulation, and investors' uncertainty about it, affects the equilibrium pay contract and the informational efficiency of asset prices. The paper derives a range of new cross-sectional comparative static results and sheds light on corporate governance regulations.
Book Synopsis The Hidden Cost of Managerial Incentives by : Naveen D. Daniel
Download or read book The Hidden Cost of Managerial Incentives written by Naveen D. Daniel and published by . This book was released on 2014 with total page 38 pages. Available in PDF, EPUB and Kindle. Book excerpt: We examine how incentives embedded in managerial compensation contracts are priced by the bond and stock markets. Specifically, the incentives we consider are the sensitivity of CEO wealth to stock price (delta) and the sensitivity of CEO wealth to stock-return volatility (vega). Controlling for other determinants, we find that higher levels of both vega and delta are associated with higher bond credit spreads and higher expected stock returns. In addition to having a direct effect on credit spreads and expected stock returns, higher incentives are also associated with lower average cash flows, higher volatility of cash flows, and higher volatility of stock returns (all of which increase credit spreads), and higher systematic risk (which increases expected stock return). Thus, higher incentives have a cascading effect on credit spreads and expected stock returns. Also, a portfolio of high-incentive firms significantly underperforms a portfolio of low-incentive firms on a risk-adjusted basis; thus, on average shareholders appear to be harmed ex post as a result of incentive provision.
Book Synopsis Managerial Incentives, Fraud, and Monitoring by : H. David Robison
Download or read book Managerial Incentives, Fraud, and Monitoring written by H. David Robison and published by . This book was released on 2008 with total page 36 pages. Available in PDF, EPUB and Kindle. Book excerpt: Equity-based compensation, while inducing greater managerial effort, also provides incentives for managers to fraudulently inflate a firm's stock price. This paper examines the owners' optimal contract in the face of these conflicting incentives when it is sometimes possible for the manager to commit fraud and the public disclosure of fraud harms the underlying value of the firm. The analysis shows that an increase in the likelihood of fraud can actually increase the attractiveness of equity compensation and the value of the firm. Ironically, while monitoring decreases the likelihood of fraud, it may indirectly increase the severity of fraud when fraud occurs.
Book Synopsis Special Section: Contests, Managerial Incentives, Stock Price Manipulation, and Advance Selling Strategies by :
Download or read book Special Section: Contests, Managerial Incentives, Stock Price Manipulation, and Advance Selling Strategies written by and published by . This book was released on 2013 with total page 118 pages. Available in PDF, EPUB and Kindle. Book excerpt:
Author :Professor and Chair of Political Science Jie Chen Publisher :Open Dissertation Press ISBN 13 :9781361285770 Total Pages : pages Book Rating :4.2/5 (857 download)
Book Synopsis Managerial Incentive Contracts in Newly Listed Firms by : Professor and Chair of Political Science Jie Chen
Download or read book Managerial Incentive Contracts in Newly Listed Firms written by Professor and Chair of Political Science Jie Chen and published by Open Dissertation Press. This book was released on 2017-01-26 with total page pages. Available in PDF, EPUB and Kindle. Book excerpt: This dissertation, "Managerial Incentive Contracts in Newly Listed Firms" by Jie, Chen, 陈洁, was obtained from The University of Hong Kong (Pokfulam, Hong Kong) and is being sold pursuant to Creative Commons: Attribution 3.0 Hong Kong License. The content of this dissertation has not been altered in any way. We have altered the formatting in order to facilitate the ease of printing and reading of the dissertation. All rights not granted by the above license are retained by the author. Abstract: Newly listed firms have a short history of stock value, and may initially not rely on stock price information in incentive contracting as much as seasoned firms. In this thesis, I examine managerial incentive contracts in newly listed firms by comparing CEO compensation between IPO firms and seasoned firms. For IPOs listed on NYSE from 1993 to 2001, a matching sample of seasoned firms was obtained according to criteria in industry, size and book-to-market ratio. By examining the multi-dimensions of CEO incentives, including cash compensation, option grants, stock ownership, and dismissal for the first six years after listing, I document significant differences between IPOs and seasoned firms. I find that while the sensitivity of short-term incentive pay to shareholder return is lower in IPOs than in seasoned firms, long-term incentives from CEO stock ownership are significantly more important in newly listed firms. Moreover, although CEO turnover in an IPO firm is lower, it depends on both stock-price return and accounting performance. These IPO-seasoned differences diminish over time and disappear in three to five years. My findings suggest that to motivate the manager of a newly listed firm, the board avoids short-term uncertainty associated with new stocks while emphasizing the role of shareholder value in the long run. DOI: 10.5353/th_b4717906 Subjects: Executives - Salaries, etc Incentives in industry - Mathematical models
Book Synopsis The Effect of Product-market Competition on Managerial Incentives and Managerial Pay in Compensation Contracts by : Christo Suresh Karunananthan
Download or read book The Effect of Product-market Competition on Managerial Incentives and Managerial Pay in Compensation Contracts written by Christo Suresh Karunananthan and published by . This book was released on 2004 with total page 168 pages. Available in PDF, EPUB and Kindle. Book excerpt:
Book Synopsis Pay Without Performance by : Lucian A. Bebchuk
Download or read book Pay Without Performance written by Lucian A. Bebchuk and published by Harvard University Press. This book was released on 2004 with total page 308 pages. Available in PDF, EPUB and Kindle. Book excerpt: The company is under-performing, its share price is trailing, and the CEO gets...a multi-million-dollar raise. This story is familiar, for good reason: as this book clearly demonstrates, structural flaws in corporate governance have produced widespread distortions in executive pay. Pay without Performance presents a disconcerting portrait of managers' influence over their own pay--and of a governance system that must fundamentally change if firms are to be managed in the interest of shareholders. Lucian Bebchuk and Jesse Fried demonstrate that corporate boards have persistently failed to negotiate at arm's length with the executives they are meant to oversee. They give a richly detailed account of how pay practices--from option plans to retirement benefits--have decoupled compensation from performance and have camouflaged both the amount and performance-insensitivity of pay. Executives' unwonted influence over their compensation has hurt shareholders by increasing pay levels and, even more importantly, by leading to practices that dilute and distort managers' incentives. This book identifies basic problems with our current reliance on boards as guardians of shareholder interests. And the solution, the authors argue, is not merely to make these boards more independent of executives as recent reforms attempt to do. Rather, boards should also be made more dependent on shareholders by eliminating the arrangements that entrench directors and insulate them from their shareholders. A powerful critique of executive compensation and corporate governance, Pay without Performance points the way to restoring corporate integrity and improving corporate performance.
Book Synopsis Managerial Incentives in an Enterpreneurial Stock Market Model by : Richard E. Kihlstrom
Download or read book Managerial Incentives in an Enterpreneurial Stock Market Model written by Richard E. Kihlstrom and published by . This book was released on 1988 with total page 0 pages. Available in PDF, EPUB and Kindle. Book excerpt:
Book Synopsis Stock Options and Managerial Incentives to Invest by : Tom Nohel
Download or read book Stock Options and Managerial Incentives to Invest written by Tom Nohel and published by . This book was released on 2002 with total page 42 pages. Available in PDF, EPUB and Kindle. Book excerpt: We examine the effect of stock options on managerial incentives to invest. Our chief innovation is a model wherein firm value and executive decisions are endogenous. Numerical solutions to our model show that managerial incentives to invest are multi-dimensional and highly sensitive to option strike prices, the manager's wealth, degree of diversification, risk aversion, and career concerns. We find that over-investment problems are far more likely and far more severe than many researchers suggest. Finally, firm value is not a strictly increasing function of a manager's incentive compensation or conventional pay-for-performance metrics. Stronger managerial incentives to invest can benefit or harm a firm. Our results should send a cautionary signal to researchers who study managerial behavior. It is not sufficient to rely on one-dimensional risk-neutral valuation metrics, such as pay-for-performance, to describe the degree of incentive alignment between managers and shareholders.
Book Synopsis Disentangling Managerial Incentives from a Dynamic Perspective by : Amal Hili
Download or read book Disentangling Managerial Incentives from a Dynamic Perspective written by Amal Hili and published by . This book was released on 2016 with total page pages. Available in PDF, EPUB and Kindle. Book excerpt:
Book Synopsis Symposium on Managerial Incentives and Corporate Performance: Effects of Executive Compensation, Organzational Structure, Takeovers, and Government Policy by : Ray Ball
Download or read book Symposium on Managerial Incentives and Corporate Performance: Effects of Executive Compensation, Organzational Structure, Takeovers, and Government Policy written by Ray Ball and published by . This book was released on 1993 with total page 380 pages. Available in PDF, EPUB and Kindle. Book excerpt:
Book Synopsis Understanding High-Powered Incentives by : Dirk Jenter
Download or read book Understanding High-Powered Incentives written by Dirk Jenter and published by . This book was released on 2001 with total page 49 pages. Available in PDF, EPUB and Kindle. Book excerpt: This paper analyzes the effect of restricted stock options and restricted stock grants on managerial effort incentives. The combination of low managerial valuations of options and inefficient incentive creation makes options inferior means of inducing managerial effort incentives. The negative covariance of the option delta or pay-for-performance with marginal utility reduces ex-ante effort incentives substantially, and the more so the higher the volatility of stock returns.Pay-for-performance is shown to be a biased measure of managerial incentives. It systematically understates the incentives generated by equity holdings relative to the incentives generated by option grants. The bias is again increasing in the volatility of stock returns, offering a potential explanation for the empirical finding that pay-for-performance does not decrease with volatility as predicted by the optimal contracting framework.The private trading behavior of managers is shown to be crucial for the optimal design of compensation contracts. Assuming that managers invests only into the riskless asset makes option compensation look considerably more effective than it is: The cost of compensating the executive is underestimated, and incentive effects are overestimated. The benefit of indexing compensation schemes to market or industry returns is reduced or even eliminated when the manager is able to freely trade the index through her private account.
Book Synopsis Firm Value and Managerial Incentives by : Michel Habib
Download or read book Firm Value and Managerial Incentives written by Michel Habib and published by . This book was released on 2000 with total page 60 pages. Available in PDF, EPUB and Kindle. Book excerpt:
