Incentives and Information Asymmetry of Managerial Talent in Executive Compensation
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چکیده
We test for information structure in executive compensation. The optimal compensation contract in the principal agent model implies that incentives increase with the level of managerial talent only if information about managerial talent is asymmetric in that executives have better information than shareholders. We find positive relations between the payperformance sensitivity and the level of managerial talent, which reject the case of symmetric information. Furthermore, our empirical results reject the case of no information in which neither executives nor shareholders have the information. Thus, our findings support the existence of information asymmetry of managerial talent between executives and shareholders in executive compensation.
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