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Information Externalities, Share-Price Based Incentives and Managerial Behaviour

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  • Grant, Simon
  • King, Stephen
  • Polak, Ben

Abstract

We survey recent theoretical research on the effects of short-term share-price based managerial incentive schemes. Such schemes can induce inefficient managerial behaviour in both hidden action and hidden type contexts. These problems arise from informational asymmetries: managers take actions to manipulate the information flow rather than to maximize firm value. More generally, imperfect transmission of information between managers and shareholders or between managers of different firms can lead to similar distortions even when the parties' interests are aligned. Copyright 1996 by Blackwell Publishers Ltd

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Bibliographic Info

Article provided by Wiley Blackwell in its journal Journal of Economic Surveys.

Volume (Year): 10 (1996)
Issue (Month): 1 (March)
Pages: 1-21

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Handle: RePEc:bla:jecsur:v:10:y:1996:i:1:p:1-21

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References

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Cited by:
  1. Jason G. Cummins & Ingmar Nyman, 2002. "The dark side of competitive pressure," Finance and Economics Discussion Series 2002-43, Board of Governors of the Federal Reserve System (U.S.).
  2. Ahrens, Steffen & Pirschel, Inske & Snower, Dennis J., 2014. "A theory of price adjustment under loss aversion," Economics Working Papers 2014-05, Christian-Albrechts-University of Kiel, Department of Economics.
  3. Hirshleifer, David & Teoh, Siew Hong, 2008. "Thought and Behavior Contagion in Capital Markets," MPRA Paper 9164, University Library of Munich, Germany.
  4. Ingmar Nyman, 2004. "Stock Market Speculation and Managerial Myopia," Economics Working Paper Archive at Hunter College 402, Hunter College Department of Economics, revised 2004.
  5. Andrea Melis & Silvia Carta & Silvia Gaia, 2012. "Executive remuneration in blockholder-dominated firms. How do Italian firms use stock options?," Journal of Management and Governance, Springer, vol. 16(3), pages 511-541, August.
  6. Hirshleifer, David & Teoh, Siew Hong, 2001. "Herd Behavior and Cascading in Capital Markets: A Review and Synthesis," MPRA Paper 5186, University Library of Munich, Germany.
  7. Effinger, Matthias R. & Polborn, Mattias K., 2001. "Herding and anti-herding: A model of reputational differentiation," European Economic Review, Elsevier, vol. 45(3), pages 385-403, March.

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