Uncertainty , Investment , and Managerial Incentives ∗
نویسندگان
چکیده
This study provides evidence that managerial incentives, shaped by compensation contracts, help to explain the empirical relationship between uncertainty and investment. We develop a model in which the manager, induced by an incentive contract, makes investment decisions for a firm that faces time-varying volatility. In the model, a manager’s privately optimal investment response to a volatility shock depends on the compensation contract. We calibrate the model using compensation data and generate a panel of manager investment policies. The panel of manager incentives estimated in the model predicts firm investment responses to volatility shocks observed in the data.
منابع مشابه
The Real Effects of Short Selling Activities
Does short selling help or hinder disciplining managerial behavior? We examine managerial investment decision in a model with informed short-selling and short-term managerial incentives and show that short selling can cause firms to overinvest. The overinvestment problem is more severe for managers with stronger short-term incentives and for firms that lack quality investment opportunities. Emp...
متن کاملD . C . Uncertainty , Risk , and Incentives : Theory and Evidence
Uncertainty has qualitatively different implications than risk in studying executive incentives. We study the interplay between profitability uncertainty and moral hazard, where profitability is multiplicative with managerial effort. Investors who face greater uncertainty desire faster learning, and consequently offer higher managerial incentives to induce higher effort from the manager. In con...
متن کاملOptions, option repricing in managerial compensation: Their effects on corporate investment risk
Article history: Received 1 August 2012 Received in revised form 26 September 2013 Accepted 3 November 2013 Available online xxxx While stock options are commonly used in managerial compensation to provide desirable incentives, they can create adverse incentives to distort the choice of investment risk. Relative to the risk level that maximizes firm value, call options in a compensation contrac...
متن کاملReal Options and Adverse Incentives: Determining the Incentive Compatible Cost-of-Capital
In this paper, we examine the real options approach to capital budgeting in the presence of managerial adverse incentives. We show that real options have the potential to be value enhancing or value destroying depending on managerial incentives. We further examine the possibility of using a generic residual income based rule of managerial compensation to induce the proper investment incentives ...
متن کاملEssays on Earnings Management, Investment Efficiency, and Managerial Incentives
In response to accounting scandals, market control systems (e.g. regulations related to internal control systems) have become more stringent in order to restore investors’ confidence in capital markets. Tightening control systems has triggered a fierce debate on its effect on both capital markets and the real economy. My dissertation studies how mitigating earnings management by tightening cont...
متن کامل