If a bank faces potential insolvency, it will be tempted to reject good loans and accept bad loans to shift risk onto its creditors. We analyze effectiveness of buying up toxic mortgages in troubled banks, buying preferred stock, and buying common stock. If bailouts for banks that are deemed...

This study solves the optimal managerial compensation problem when shareholders are either naiuml;vely optimistic or rational. The results suggest that boards of directors should decrease option grants to CEOs when equity is likely to be irrationally overvalued at the date when the CEO's options...

Purpose – The purpose of this paper is to solve the optimal managerial compensation problem when shareholders are either naïvely optimistic or rational. Design/methodology/approach –The paper uses applied game theory to derive the optimal CEO compensation package with over optimistic...

This paper studies the factors that were associated with a bank's early exit from the Troubled Asset Relief Program (TARP) in 2009. Executive pay restrictions were often a rationale cited for early TARP exit, and high levels of CEO pay in 2008 were associated with banks being significantly more...

This paper examines changes in executive compensations structure following restatements of prior period earnings, and whether the passage of the Sarbanes-Oxley Act (SOX) influences how firms react to accounting misreporting when they modify their CEO compensation contracts. Based on a sample of...

This paper develops an agency model to analyze the optimality of executive stock option compensation in the presence of information manipulation. The analyses show that although information manipulation is positively related to the size of option compensation, the relative size of...