Managerial Short-Termism, Turnover Policy, and the Dynamics of Incentives

• 成果类型: Article
• 署名作者: Varas, Felipe
• 署名单位: Duke University
• 刊物名称: REVIEW OF FINANCIAL STUDIES
• ISSN/ISSBN: 0893-9454
• DOI: 10.1093/rfs/hhx088
• 发表日期: 2018
• 页码: 3409
• 关键词: POWERED INCENTIVES; moral hazard; AGENCY; COMPENSATION; CONTRACTS; securitization

摘要

I study managerial short-termism in a dynamic model of project development with hidden effort and imperfect observability of quality. The manager can complete the project faster by reducing quality. To preempt this behavior, the principal makes payments contingent on long-term outcomes. I analyze the dynamics of the optimal contract and its implications for the level of managerial turnover. I show that optimal contracts might be stationary and entail no termination. In general, I show that the principal reduces the manager's temptation to behave myopically by reducing the likelihood of termination and deferring compensation. The model predicts a negative relation between the rate of managerial turnover and the use of deferred compensation that is consistent with evidence of managerial compensation contracts.