We study a model in which a manager can engage in unobservable cost-cutting effort, possesses private information about firm profits and where shareholders employ stock and stock option-based compensation packages to align the manager's interests with theirs. Stock-based incentives may induce the manager to misrepresent profits with the aim to increase the firm's stock price and hence her compensation. Common wisdom holds that competition disciplines the manager. We investigate how product market competition affects the shareholders' trade-off between fraud and effort and hence incentive provision.
Andergassen, R. (2016). Managerial compensation, product market competition and fraud. INTERNATIONAL REVIEW OF ECONOMICS & FINANCE, 45, 1-15 [10.1016/j.iref.2016.04.010].
Managerial compensation, product market competition and fraud
ANDERGASSEN, RAINER
2016
Abstract
We study a model in which a manager can engage in unobservable cost-cutting effort, possesses private information about firm profits and where shareholders employ stock and stock option-based compensation packages to align the manager's interests with theirs. Stock-based incentives may induce the manager to misrepresent profits with the aim to increase the firm's stock price and hence her compensation. Common wisdom holds that competition disciplines the manager. We investigate how product market competition affects the shareholders' trade-off between fraud and effort and hence incentive provision.I documenti in IRIS sono protetti da copyright e tutti i diritti sono riservati, salvo diversa indicazione.
