Incentives and performance in the presence of wealth effects and endogenous risk

Journal of Economic Theory

Volumn 129, Issue 1, 2006, Pages 150-191

  Guo, Ming ^a   Ou Yang, Hui ^b  

^a DUKE UNIVERSITY   (United States)

^b DUKE UNIVERSITY   (United States)

Author keywords

Agency theory; Endogenous risk; Incentives and performance; Wealth effects

Indexed keywords

EID: 33744970723     PISSN: 00220531     EISSN: 10957235     Source Type: Journal    
DOI: 10.1016/j.jet.2004.07.010     Document Type: Article

References (44)

1. Aggarwal R., and Samwick A. The other side of the trade-off. the impact of risk on executive compensation. J. Polit. Economy 107 (1999) 65-105
2. Aggarwal R., and Samwick A. Why do managers diversify their firms? Agency reconsidered. J. Finance 58 (2003) 71-118
3. Amihud Y., and Lev B. Risk reduction as a managerial motive for conglomerate mergers. Bell J. Econ. 12 (1981) 605-617
4. M.P. Bitler, T.J. Moskowitz, A. Vissing-Jørgensen, Why do entrepreneurs hold large ownership shares? Testing agency theory using entrepreneur effort and wealth, Working paper, University of Chicago, 2003.
5. Black F., and Scholes M. The pricing of options and corporate liabilities. J. Polit. Economy 81 (1973) 637-659
6. Bushman R., Indejikian R., and Smith A. CEO compensation. the role of individual performance evaluation. J. Acc. Econ. 21 (1996) 161-193
7. Cadenillas A., Cvitanic J., and Zapatero F. Leverage decision and manager compensation with choice of effort and volatility. J. Finan. Econ. 73 (2004) 71-92
8. J. Core, W. Guay, The other side of the trade-off: the impact of risk on executive compensation, A comment, Working paper, University of Pennsylvania, 2000.
9. P. M. DeMarzo, B. Urosevic, Optimal trading by a "large shareholder", Working paper, Stanford University and University of California, Berkeley, 2001.
10. Demsetz H., and Lehn K. The structure of corporate ownership. causes and consequences. J. Polit. Economy 93 (1985) 1155-1177
11. Garen J. Executive compensation and principal-agent theory. J. Polit. Economy 102 (1994) 1175-1199
12. Garvey G., and Milbourn T. Incentive compensation when executives can hedge the market. evidence of relative performance evaluation in the cross section. J. Finance 58 (2003) 1557-1581
13. Gibbons R., and Waldman M. Executive compensation. In: Ashenfelter O., and Card D. (Eds). Handbook of Labor Economics vol. 3 (1999), North-Holland, Amsterdam
14. Grossman S., and Hart O. An analysis of the principal-agent problem. Econometrica 51 (1983) 7-45
15. Harris M., and Raviv A. Optimal incentive contracts with imperfect information. J. Econ. Theory 20 (1979) 231-259
16. Hellwig M.F., and Schmidt K.M. Discrete-time approximation of the Holmström-Milgrom Brownian-motion model of intertemporal incentives provision. Econometrica 70 (2002) 2225-2264
17. Himmelberg C., Hubbard R.G., and Palia D. Understanding the determinants of managerial ownership and the links between ownership and firm performance. J. Finan. Econ. 53 (1999) 353-384
18. Holmström B. Moral hazard and observability. Bell J. Econ. 10 (1979) 74-91
19. Holmström B., and Milgrom P. Aggregation and linearity in the provision of intertemporal incentives. Econometrica 55 (1987) 303-328
20. Holmström B., and Milgrom P. Multitask principal-agent analyses. incentive contracts, asset ownership, and job design. J. Law Econ. Organ. 7 (1991) 24-52
21. Ittner C., Larcker D., and Rajan M. The choice of performance measures in annual bonus contracts. Acc. Rev. 73 (1997) 231-255
22. Jensen M., and Murphy K.J. Performance pay and top-management incentives. J. Polit. Economy 98 (1990) 225-264
23. W. Jiang, Incentives for money managers under endogenous risk choice, Working paper, Columbia University, 2001.
24. Jin L. CEO compensation, diversification and incentives. J. Finan. Econ. 66 (2002) 29-63
25. Kihlstrom R.E., and Matthews S.A. Managerial incentives in an entrepreneurial stock market model. J. Finan. Intermediation 1 (1990) 57-79
26. Lambert R., and Larker D. An analysis of the use of accounting and market measures of performance in executive compensation contracts. J. Acc. Res. 25 (1987) 85-125
27. Lazear E.P. Performance pay and productivity. Amer. Econ. Rev. 90 (2000) 1346-1361
28. Lazear E.P., and Rosen S. Rank-order tournaments as optimum labor contracts. J. Polit. Economy 89 (1981) 841-864
29. Leland H.E., and Pyle D. Information asymmetries, financial structure, and financial intermediation. J. Finance 32 (1977) 371-387
30. M. Magill, M. Quinzii, Capital market equilibrium with moral hazard, Working paper, USC and UC Davis, 2000.
31. McConnell J., and Servaes H. Additional evidence on equity ownership and corporate value. J. Finan. Econ. 27 (1990) 595-612
32. Mirrlees J. The optimal structure of authority and incentives within an organization. Bell J. Econ. 7 (1976) 105-131
33. Morck R., Shleifer A., and Vishny R. Management ownership and market valuation. an empirical analysis. J. Finan. Econ. 20 (1988) 293-316
34. Murphy K. Executive compensation. In: Ashenfelter O., and Card D. (Eds). Handbook of Labor Economics vol. 3 (1999), North-Holland, Amsterdam
35. Ou-Yang H. Optimal contracts in a continuous-time delegated portfolio management problem. Rev. Finan. Stud. 16 (2003) 173-208
36. H. Ou-Yang, An equilibrium model of asset pricing and moral hazard, Rev. Finan. Stud. (2004), forthcoming.
37. Palia D. The endogeneity of managerial compensation in firm valuation. a solution. Rev. Finan. Stud. 14 (2001) 735-764
38. Prendergast C. The provision of incentives in firms. J. Econ. Lit. 37 (1999) 7-63
39. Prendergast C. The tenuous tradeoff between risk and incentives. J. Polit. Economy 110 (2002) 1071-1102
40. Ross S.A. The economic theory of agency. the principal's problem. Amer. Econ. Rev. 63 (1973) 134-139
41. Schättler H., and Sung J. The first-order approach to the continuous-time principal-agent problem with exponential utility. J. Econ. Theory 61 (1993) 331-371
42. L. Shi, Respondable risk and incentives: evidence from executive compensation, Working paper, University of Chicago, 2003.
43. Sung J. Linearity with project selection and controllable diffusion rate in continuous-time principal-agent problems. RAND J. Econ. 26 (1995) 720-743
44. Yermack D. Do corporations award CEO stock options effectively?. J. Finan. Econ. 39 (1995) 237-270