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Article: Contractual Managerial Incentives with Stock Price Feedback

TitleContractual Managerial Incentives with Stock Price Feedback
Authors
Lin, TCLiu, QSun, B
KeywordsExecutive compensation
CEO
Managerial power
Issue Date2019
PublisherAmerican Economic Association. The Journal's web site is located at http://www.aeaweb.org/aer/index.php
Citation
The American Economic Review, 2019, v. 109 n. 7, p. 2446-2468 How to Cite?
DOI: http://dx.doi.org/10.1257/aer.20151310
AbstractWe 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.
Persistent Identifierhttp://hdl.handle.net/10722/279003
ISSN
0002-8282
2021 Impact Factor: 11.490
2020 SCImago Journal Rankings: 16.936
ISI Accession Number ID
WOS:000472830600003

 

DC FieldValueLanguage
dc.contributor.authorLin, TC-
dc.contributor.authorLiu, Q-
dc.contributor.authorSun, B-
dc.date.accessioned2019-10-21T02:17:50Z-
dc.date.available2019-10-21T02:17:50Z-
dc.date.issued2019-
dc.identifier.citationThe American Economic Review, 2019, v. 109 n. 7, p. 2446-2468-
dc.identifier.issn0002-8282-
dc.identifier.urihttp://hdl.handle.net/10722/279003-
dc.description.abstractWe 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.-
dc.languageeng-
dc.publisherAmerican Economic Association. The Journal's web site is located at http://www.aeaweb.org/aer/index.php-
dc.relation.ispartofThe American Economic Review-
dc.rightsThe American Economic Review. Copyright © American Economic Association.-
dc.subjectExecutive compensation-
dc.subjectCEO-
dc.subjectManagerial power-
dc.titleContractual Managerial Incentives with Stock Price Feedback-
dc.typeArticle-
dc.identifier.emailLin, TC: chunlin@hku.hk-
dc.identifier.authorityLin, TC=rp01077-
dc.description.naturepublished_or_final_version-
dc.identifier.doi10.1257/aer.20151310-
dc.identifier.scopuseid_2-s2.0-85058803158-
dc.identifier.hkuros308022-
dc.identifier.volume109-
dc.identifier.issue7-
dc.identifier.spage2446-
dc.identifier.epage2468-
dc.identifier.isiWOS:000472830600003-
dc.publisher.placeUnited States-
dc.identifier.issnl0002-8282-

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