Contractual Managerial Incentives with Stock Price Feedback

• 成果类型: Article
• 署名作者: Lin, Tse-Chun; Liu, Qi; Sun, Bo
• 署名单位: University of Hong Kong; Peking University; Federal Reserve System - USA; Federal Reserve System Board of Governors
• 刊物名称: AMERICAN ECONOMIC REVIEW
• ISSN/ISSBN: 0002-8282
• DOI: 10.1257/aer.20151310
• 发表日期: 2019
• 页码: 2446-2468
• 关键词: INVESTMENT SENSITIVITY; liquidity; MARKETS; tests

摘要

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 manage-rial 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.