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- Publisher Website: 10.2308/JMAR-18-032
- Scopus: eid_2-s2.0-85111772539
- WOS: WOS:000674621500006
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Article: Optimal Performance Targets
Title | Optimal Performance Targets |
---|---|
Authors | |
Keywords | Compensation contract Moral hazard Performance target |
Issue Date | 2021 |
Publisher | American Accounting Association. The Journal's web site is located at http://aaapubs.org/loi/jmar |
Citation | Journal of Management Accounting Research, 2021, v. 33 n. 2, p. 129-149 How to Cite? |
Abstract | We study a class of contracts that is becoming ever more common among executives, in which the manager earns a discrete bonus if performance clears an explicit threshold. These performance targets provide the firm with an additional instrument to resolve its moral hazard problem with its manager. The performance target can achieve first-best under risk neutrality, with a target precisely equal to the desired effort that the firm seeks to induce. The optimal bonus increases in risk. If the manager is sufficiently risk-averse, the firm will shade the optimal target below equilibrium effort to provide a form of insurance to the manager, outside of the standard reduction in the bonus. © 2021, American Accounting Association. |
Persistent Identifier | http://hdl.handle.net/10722/302437 |
ISSN | 2023 Impact Factor: 1.4 2023 SCImago Journal Rankings: 0.727 |
ISI Accession Number ID |
DC Field | Value | Language |
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dc.contributor.author | Hu, P | - |
dc.contributor.author | Li, Y | - |
dc.contributor.author | Ray, K | - |
dc.date.accessioned | 2021-09-06T03:32:16Z | - |
dc.date.available | 2021-09-06T03:32:16Z | - |
dc.date.issued | 2021 | - |
dc.identifier.citation | Journal of Management Accounting Research, 2021, v. 33 n. 2, p. 129-149 | - |
dc.identifier.issn | 1049-2127 | - |
dc.identifier.uri | http://hdl.handle.net/10722/302437 | - |
dc.description.abstract | We study a class of contracts that is becoming ever more common among executives, in which the manager earns a discrete bonus if performance clears an explicit threshold. These performance targets provide the firm with an additional instrument to resolve its moral hazard problem with its manager. The performance target can achieve first-best under risk neutrality, with a target precisely equal to the desired effort that the firm seeks to induce. The optimal bonus increases in risk. If the manager is sufficiently risk-averse, the firm will shade the optimal target below equilibrium effort to provide a form of insurance to the manager, outside of the standard reduction in the bonus. © 2021, American Accounting Association. | - |
dc.language | eng | - |
dc.publisher | American Accounting Association. The Journal's web site is located at http://aaapubs.org/loi/jmar | - |
dc.relation.ispartof | Journal of Management Accounting Research | - |
dc.subject | Compensation contract | - |
dc.subject | Moral hazard | - |
dc.subject | Performance target | - |
dc.title | Optimal Performance Targets | - |
dc.type | Article | - |
dc.identifier.email | Hu, P: kerihu@hku.hk | - |
dc.identifier.authority | Hu, P=rp02854 | - |
dc.description.nature | postprint | - |
dc.identifier.doi | 10.2308/JMAR-18-032 | - |
dc.identifier.scopus | eid_2-s2.0-85111772539 | - |
dc.identifier.hkuros | 324849 | - |
dc.identifier.volume | 33 | - |
dc.identifier.issue | 2 | - |
dc.identifier.spage | 129 | - |
dc.identifier.epage | 149 | - |
dc.identifier.isi | WOS:000674621500006 | - |
dc.publisher.place | United States | - |