The paper investigates how a publicly traded firm’s liquidation value and stock price are used in the executive compensation contract when information acquisition in the stock market is endogenized. We find that the inside owners can increase their payoff by incorporating the stock price into the contract even when the stock price does not contain any information about the managerial effort. It is because the increase in the firm’s liquidation value always dominates that in expense of the managerial compensation. We analyze comparative statistics of the optimal contract. If information cost in the stock market displays an intermediate value, external factors generate direct effects and indirect effects via information acquisition. Otherwise, the indirect effects disappear and only the direct effects have influence on the optimal contract. Finally, we find that the market-based contract leads to a higher social welfare compared to the contract excluding the stock price.
KEYWORDS: principal-agent problem; executive compensation; information acquisition; price informativeness; price volatility
JEL CLASSIFICATION: G30, D86
[2015년 제 4차] Market-Based Executive Compensation under Asymmetri
작성자 : 관리자
조회수 : 899
게시일 :
2015-12-30