Executive Compensation and Short-termist Behavior in Speculative Markets
نویسندگان
چکیده
We present a multiperiod agency model of stock based executive compensation in a speculative stock market, where investors have heterogeneous beliefs and stock prices may deviate from underlying fundamentals and include a speculative option component. This component arises from the option to sell the stock in the future to potentially overoptimistic investors. We show that optimal compensation contracts may emphasize short-term stock performance, at the expense of long run fundamental value, as an incentive to induce managers to pursue actions which increase the speculative component in the stock price. Our model provides a di¤erent perspective on the recent corporate crisis than the rent extraction viewof executive compensation. We would like to thank Lucian Bebchuk, Alan Blinder, David Easley, Mike Fishman, Maitreesh Ghatak (the editor), Gary Gorton, Rodrigo Guimaraes, Harrison Hong, Rafael LaPorta, Sendhil Mullainathan, Benjamin Polak, David Scharfstein, Hyun Shin, Jeremy Stein, Rene Stulz, Ivo Welch, three anonymous referees and the participants at several seminars for discussions and comments. Scheinkman is grateful to the National Science Foundation grant for nancial support.
منابع مشابه
Executive Compensation and Short-Termist Behaviour in Speculative Markets
We present a multiperiod agency model of stock-based executive compensation in a speculative stock market, where investors have heterogeneous beliefs and stock prices may deviate from underlying fundamentals and include a speculative option component. This component arises from the option to sell the stock in the future to potentially overoptimistic investors. We show that optimal compensation ...
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