Market-Based Executive Compensation Contract under Endogenous Information Acquisition
- Market-Based Executive Compensation Contract under Endogenous Information Acquisition
- HAHN, GUANGSUG and JOON YEOP KWON
- Date Issued
- Financial Management Association
- The study investigates how a publicly traded firm’s liquidation value and stock price are
used in an executive compensation contract when information acquisition in the asset market
is endogenized. If the inside owner offers market-based compensation contract to the
risk-averse manager, the inside owner expects higher utility than when stock prices are excluded
from the contract. If information cost displays an intermediate value, changes in the
exogenous parameters generate the direct effect and the indirect effect via the information
market. Finally, we find that the market-based compensation contract contributes to the
increase of social welfare.
- Article Type
- The 2018 FMA Annual Meeting, 2018-10-11
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