Please use this identifier to cite or link to this item: http://hdl.handle.net/10419/123762
Authors: 
Schroth, Josef
Year of Publication: 
2015
Series/Report no.: 
Bank of Canada Working Paper 2015-25
Abstract: 
I build a model of optimal managerial compensation where managers each have a privately observed propensity to manipulate short-term stock prices. It is shown that this informational asymmetry reverses some of the conventional wisdom about the relationship between reliance on short-term pay and propensity to manipulate. The optimal compensation scheme features a negative relationship between pay duration and manager manipulation activity, reconciling theory with recent empirical findings (Gopalan et al., 2014). Further, the model predicts that managers who spend more resources manipulating short-term stock prices also put more effort into generating longterm firm value.
Subjects: 
Labour markets
Economic models
Recent economic and financial developments
JEL: 
D82
G14
G30
M12
Document Type: 
Working Paper

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