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论文作者:英语论文论文属性:讲稿 Lecture Notes登出时间:2010-02-14编辑:steelbeezxp点击率:7092
论文字数:200论文编号:org201002141544127812语种:英语 English地区:英国价格:免费论文
关键词:
Corporate Governance: managerial compensation and firm performance
Advanced Corporate Finance
Managers vs. Shareholders
Shareholders want to maximize firm’s financial value while managers have additional objectives:
To reduce idiosyncratic risk
Protect their non-diversifiable human capital
Career concerns
Take actions/projects that benefit their professional careers
Slackers! (reduce effort)
Managers do not suffer the full consequences of effort reductions
I am the king of all I see!
Empire building (i.e. overinvestment)
To protect other constituencies (e.g., employees)
Manager’s age, human capital, tenure in the firm, preferences (i.e., risk aversion), and wealth affect such differences
Some Examples
“Entrenchment”
Managers make irreversible investments to businesses in which they have particular expertise
Resistance to replacements and takeovers
Fact: Less resistance if managers own substantial equity
Making negative NPV investments to minimize risk
Managerial tendency toward diversifying acquisitions that destroy shareholder value
Keeping leverage low to reduce bankruptcy risk (at the expense of possible tax savings)
High personal cost of bankruptcy for managers
Horizon problems
Short-sighted investments by managers
Fact: CEO compensation affected by proximity to retirement
Example: Tyco - Dennis Kozlowski’s Party
Dennis Kozlowski’s wife birthday party in Sardinia cost Tyco an estimate amount of $2 million!
The direct cost to Kozlowski depends on his equity stake in the firm
If he held 1% of outstanding shares, the party cost was only $20,000 from his perspective
The remaining $1,980,000 would come from the other shareholders
The CEO is spending other people’s money, effectively. Clear moral hazard problem
What can shareholders do?本论文由英语论文网www.51lunwen.org整理提供
How should non-controlling shareholders organize the firm to better align managers’ incentives?
External Mechanisms of Control
Market for Corporate Control (Takeovers)
Internal Mechanisms of Control
Managerial Compensation Contracts
Board of Directors (monitoring)
Concentrated Ownership (institutional investors)
Other Mechanisms
Managerial Reputation
Market Monitoring
What We Know
Median compensation 4 times greater - large versus small firms ($4.5m versus $0.9 m)
Bonus and options components of compensation not much different for large firms versus small firms
Difference is salary (24% versus 42%) and others (18% versus 9%) - restricted stock and long term incentive plans
Australia is different!
The Beginning: Principal-Agent Model
CEO takes action a to produce stochastic value x(a) receiving compensation w(x,z) and utility u(w,a) where z is a vector of other unobservable measures in the contract
Only CEO observes a
Optimal contract w(x,z)
Maximize risk-neutral shareholder x-w
Subject to:
Incentive compatible constraint (CEO chose action to maximize u(w,a)
Participation constraint (expected utility of contract > CEO’s reservation utility)
The Beginning: Principal-Agent Model
Under the optimal contract payoff depends on the likelihood that the desired action was taken
“Informativeness principle”
Compensation is based on stock price measures (and accounting measures) because they provide information in determining whi本论文由英语论文网提供整理,提供论文代写,英语论文代写,代写论文,代写英语论文,代写留学生论文,代写英文论文,留学生论文代写相关核心关键词搜索。