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Talking down the firm: Short-term market manipulation and optimal management compensation

  • Garvey, Gerald T.
  • Grant, Simon
  • King, Stephen P.

This paper analyzes the optimal use of short and long-term share prices in management incentive contracts. A key innovation of our model is that the short-term share price is determined even before the manager has made her effort choice and therefore cannot be informative in the standard principl-agent sense.

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File URL: http://www.sciencedirect.com/science/article/B6V8P-3T82T51-8/2/480a195f0eb193b261922f2cab3d20ea
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Article provided by Elsevier in its journal International Journal of Industrial Organization.

Volume (Year): 16 (1998)
Issue (Month): 5 (September)
Pages: 555-570

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Handle: RePEc:eee:indorg:v:16:y:1998:i:5:p:555-570
Contact details of provider: Web page: http://www.elsevier.com/locate/inca/505551

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  1. Lambert, Richard A., 1993. "The use of accounting and security price measures of performance in managerial compensation contracts: A discussion," Journal of Accounting and Economics, Elsevier, vol. 16(1-3), pages 101-123, April.
  2. Bengt Holmstrom & Paul R. Milgrom, 1985. "Aggregation and Linearity in the Provision of Intertemporal Incentives," Cowles Foundation Discussion Papers 742, Cowles Foundation for Research in Economics, Yale University.
  3. Milgrom, Paul R, 1988. "Employment Contracts, Influence Activities, and Efficient Organization Design," Journal of Political Economy, University of Chicago Press, vol. 96(1), pages 42-60, February.
  4. David Yermack, 1996. "Good Timing: CEO Stock Option Awards and Company News Announcements," New York University, Leonard N. Stern School Finance Department Working Paper Seires 96-41, New York University, Leonard N. Stern School of Business-.
  5. Holmstrom, Bengt & Tirole, Jean, 1993. "Market Liquidity and Performance Monitoring," Journal of Political Economy, University of Chicago Press, vol. 101(4), pages 678-709, August.
  6. Benabou, R. & Laroque, G., 1988. "Using Privileged Information To Manipulate Markets: Insiders, Gurus And Credibility," Papers 19, Princeton, Woodrow Wilson School - Discussion Paper.
  7. Giovanni Maggi & Andres Rodriguez-Clare, 1995. "Costly Distortion of Information in Agency Problems," RAND Journal of Economics, The RAND Corporation, vol. 26(4), pages 675-689, Winter.
  8. Lawrence R. Glosten & Paul R. Milgrom, 1983. "Bid, Ask and Transaction Prices in a Specialist Market with Heterogeneously Informed Traders," Discussion Papers 570, Northwestern University, Center for Mathematical Studies in Economics and Management Science.
  9. Stein, Jeremy C, 1989. "Efficient Capital Markets, Inefficient Firms: A Model of Myopic Corporate Behavior," The Quarterly Journal of Economics, MIT Press, vol. 104(4), pages 655-69, November.
  10. Diamond, Douglas W & Verrecchia, Robert E, 1982. " Optimal Managerial Contracts and Equilibrium Security Prices," Journal of Finance, American Finance Association, vol. 37(2), pages 275-87, May.
  11. Allen, Franklin & Gale, Douglas, 1992. "Stock-Price Manipulation," Review of Financial Studies, Society for Financial Studies, vol. 5(3), pages 503-29.
  12. Jensen, Michael C & Murphy, Kevin J, 1990. "Performance Pay and Top-Management Incentives," Journal of Political Economy, University of Chicago Press, vol. 98(2), pages 225-64, April.
  13. Joseph G. Haubrich, 1991. "Risk aversion, performance pay, and the principal-agent problem," Working Paper 9118, Federal Reserve Bank of Cleveland.
  14. Yermack, David, 1995. "Do corporations award CEO stock options effectively?," Journal of Financial Economics, Elsevier, vol. 39(2-3), pages 237-269.
  15. Allen, Franklin & Gale, Douglas, 1992. "Measurement Distortion and Missing Contingencies in Optimal Contracts," Economic Theory, Springer, vol. 2(1), pages 1-26, January.
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