Economic consequences of managerial compensation contract disclosure

• 成果类型: Article
• 署名作者: Xiong, Yan; Jiang, Xu
• 署名单位: Hong Kong University of Science & Technology; Duke University
• 刊物名称: JOURNAL OF ACCOUNTING & ECONOMICS
• ISSN/ISSBN: 0165-4101
• DOI: 10.1016/j.jacceco.2022.101489
• 发表日期: 2022
• 关键词: strategic trade-policy; executive-compensation; INFORMATION; COMPETITION; pay; equilibrium; incentives; FIRMS; determinants; objectives

摘要

We analytically study the economic consequences of the disclosure of managerial compensation contracts in a setting where two firms, by designing compensation contracts for their respective managers, compete for a new investment opportunity. Each manager is privately informed about her firm's profitability from this investment. We find that the disclosure leads to firms' emphasizing short-term stock performance in their managers' contracts. This, in turn, induces managers to signal favorable private information via myopic overinvestment, which deters rival firms' investments and gains their own firms a competitive edge. Nonetheless, such strategic use of compensation contracts is absent when the contracts are not disclosed; under this regime, equilibrium contracts only focus on long-term outcomes. Moreover, while disclosure-mandate-induced managerial myopia erodes firm profits, it may benefit consumer and social welfare. Our theory illuminates the economic consequences of the Compensation Discussion and Analysis (CD&A) disclosure implemented in 2006.(c) 2022 Elsevier B.V. All rights reserved.