We document that credit rating changes significantly affect chief executive officer's (CEO's) incentives. Modeling both credit rating changes and CEO incentive changes as two jointly endogenous processes, we present strong evidence that CEO incentives increase subsequent to credit downgrades...

This paper examines under what circumstances the market-based compensation scheme is effective in inducing managers' incentives. We combine the optimal contract theory with the market microstructure literature and endogenize both the optimal compensation scheme and the stock market equilibrium....

We assess the impact of the Sarbanes-Oxley Act of 2002 on corporate investment in an investment Euler equation framework, where a dummy for the passage of the Act is allowed to affect the rate at which managers discount future investment payoffs. Using generalized method of moments estimators,...

We examine the role of information-based stock trading in affecting the risk-incentive relation. By incorporating an endogenous informed trading into an optimal incentive contracting model, we analytically show that, apart from reducing incentives, a greater risk increases the level of...

We document that the value-weighted aggregate discretionary accruals have significant power in predicting the one-year-ahead stock market returns between 1965 and 2004. The predictive relation is stable and robust to different ways to measure market returns and discretionary accruals as well as...

This paper investigates the effect of stock market microstructure on managerial compensation schemes. We propose and empirically demonstrate that the sensitivity of chief executive officer's (CEO's) compensations to changes in stockholders' value is higher when the stock market facilitates the...

Motivated by the findings that the aggregate (discretionary) accruals positively predicts one-year-ahead firm-level stock returns and that there is a considerable amount of co-movement in firm-level (discretionary) accruals, we decompose firm-level (discretionary) accruals into a market-wide...

We examine the role of information-based stock trading in affecting the risk-incentive relation. By incorporating an endogenous informed trading into an optimal incentive contracting model, we analytically show that, apart from reducing incentives, a greater risk increases the level of...