Earnings vs. stock-price based incentives in managerial compensation contracts

• 成果类型: Article
• 署名作者: Bernardo, Antonio E.; Cai, Hongbin; Luo, Jiang
• 署名单位: University of California System; University of California Los Angeles; Peking University; Nanyang Technological University
• 刊物名称: REVIEW OF ACCOUNTING STUDIES
• ISSN/ISSBN: 1380-6653
• DOI: 10.1007/s11142-015-9339-6
• 发表日期: 2016
• 页码: 316-348
• 关键词: executive-compensation; corporate-investment; performance-measures; speculative markets; FIRMS; INFORMATION; EFFICIENCY; BEHAVIOR; bubbles; MODEL

摘要

We develop a theory of stock-price-based incentives even when the stock price does not contain information unknown to the firm. In our model, a manager must search for and decide on new investment projects when the market may have a difference of opinion about the quality of the firm's investment opportunities. The firm optimally provides incentives based solely on realized earnings, leading to an efficient investment policy, when the market has congruent or pessimistic beliefs; however, the firm optimally introduces stock-price-based incentives, leading to an inefficient investment policy, when the market has optimistic beliefs. If the firm can raise equity capital on favorable terms, negative NPV projects from the perspective of the firm may be positive NPV projects from the perspective of current shareholders. The firm motivates the manager to take such projects by basing some compensation on the current stock price.