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Public Reports, Information Acquisition by Investors, and Management Incentives

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  • Gerald A. Feltham

    (University of British Columbia)

  • Martin G. H. Wu

    (University of British Columbia)

Abstract

This paper initially provides a general characterization of the relative weight assigned to two performance measures in an optimal linear compensation contract in a two-task principal/agent setting. This characterization is applied to a setting in which the measures are a public report about the firm's performance (e.g., accounting earnings) and its market price. The latter reflects the public report and non-contractible investor information, whose costly acquisition is endogenously determined. The analysis considers both the gross observed price and the filtered price, which excludes the effect of the public report and represents a contractible noisy measure of the investors' non-contractible information.

Suggested Citation

  • Gerald A. Feltham & Martin G. H. Wu, 2000. "Public Reports, Information Acquisition by Investors, and Management Incentives," Review of Accounting Studies, Springer, vol. 5(2), pages 155-190, June.
    • Handle: RePEc:spr:reaccs:v:5:y:2000:i:2:d:10.1023_a:1009652723935
    DOI: 10.1023/A:1009652723935
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