Capital budgeting and compensation with asymmetric information and moral hazard

• 成果类型: Article
• 署名作者: Bernardo, AE; Cai, HB; Luo, J
• 署名单位: University of California System; University of California Los Angeles; University of California System; University of California Los Angeles; Hong Kong University of Science & Technology
• 刊物名称: JOURNAL OF FINANCIAL ECONOMICS
• ISSN/ISSBN: 0304-405X
• DOI: 10.1016/S0304-405X(01)00065-4
• 发表日期: 2001
• 页码: 311-344
• 关键词: Capital budgeting; COMPENSATION; asymmetric information; moral hazard; mechanism design; investment policy

摘要

We consider optimal capital allocation and managerial compensation mechanisms for decentralized firms when division managers have an incentive to misrepresent project quality and to minimize privately costly but value-enhancing effort. We show that in the optimal mechanism firms always underinvest in capital relative to a naive application of the net present value (NPV) rule. We make a number of novel cross-sectional predictions about the severity of the underinvestment problem and the composition of managerial compensation contracts. We also find that firms will optimally give greater performance-based pay (at the expense of fixed wages) to managers of higher quality projects to mitigate the incentive for managers to overstate project quality. Managers may thus receive greater performance-based pay because they manage higher quality projects, not that greater performance-based pay causes firm value to increase. (C) 2001 Elsevier Science S.A. All rights reserved.