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Information Externalities, Share-Price Based Incentives and Managerial Behaviour

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Author Info
Simon Grant (Australian National University)
Stephen King (University of Tsukuba)
Ben Polak () (Cowles Foundation, Yale University)

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Abstract

We survey recent theoretical research on the effects of short-term share-price based marginal 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.

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File URL: http://cowles.econ.yale.edu/P/cd/d11a/d1107.pdf
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Publisher Info
Paper provided by Cowles Foundation, Yale University in its series Cowles Foundation Discussion Papers with number 1107.

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Length: 26 pages
Date of creation: Jul 1995
Date of revision:
Publication status: Published in Journal of Economic Surveys (1996), 10: 1-21
Handle: RePEc:cwl:cwldpp:1107

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Postal: Yale University, Box 208281, New Haven, CT 06520-8281 USA
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Web page: http://cowles.econ.yale.edu/
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Postal: Cowles Foundation, Yale University, Box 208281, New Haven, CT 06520-8281 USA

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Related research
Keywords: Information externalities; share-price based incentives;

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Find related papers by JEL classification:
G30 - Financial Economics - - Corporate Finance and Governance - - - General
J33 - Labor and Demographic Economics - - Wages, Compensation, and Labor Costs - - - Compensation Packages; Payment Methods

References listed on IDEAS
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:

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Full references

Cited by:
(explanations, Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.)

  1. Ingmar Nyman, 2004. "Stock Market Speculation and Managerial Myopia," Hunter College Department of Economics Working Papers 402, Hunter College: Department of Economics, revised 2004. [Downloadable!]
    Other versions:
  2. 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.). [Downloadable!]
    Other versions:
  3. Hirshleifer, David & Teoh, Siew Hong, 2008. "Thought and Behavior Contagion in Capital Markets," MPRA Paper 9164, University Library of Munich, Germany. [Downloadable!]
    Other versions:
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