Market efficiency, managerial compensation, and real efficiency
نویسندگان
چکیده
Article history: Received 10 October 2012 Received in revised form 14 October 2013 Accepted 23 March 2014 Available online 12 April 2014 We examine how an exogenous improvement in market efficiency, which allows the stock market to obtain more precise information about the firm's intrinsic value, affects the shareholder–manager contracting problem, managerial incentives, and shareholder value. A key assumption in the model is that stock market investors do not observe the manager's pay-performance sensitivity ex ante. We show that an increase in market efficiency weakens managerial incentives by making the firm's stock price less sensitive to the firm's current performance. The impact on real efficiency and shareholder value varies depending on the composition of the firm's intrinsic value. © 2014 Elsevier B.V. All rights reserved.
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