Managerial incentives and stock price manipulation

• Autores: Lin Peng, Ailsa Röell
• Localización: The Journal of finance, ISSN 0022-1082, Vol. 69, Nº 2, 2014, págs. 487-526
• Idioma: inglés
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• Resumen

  • We present a rational expectations model of optimal executive compensation in a setting where managers are in a position to manipulate short-term stock prices and the manipulation propensity is uncertain. We analyze the tradeoffs involved in conditioning pay on long- versus short-term performance and show how manipulation, and investors' uncertainty about it, affects the equilibrium pay contract and the informativeness of prices. Firm and manager characteristics determine the optimal compensation scheme: the strength of incentives, the pay horizon, and the use of options. We consider how corporate governance and disclosure regulations can help create an environment that enables better contracting.