This paper provides a theoretical model for explaining the separation of ownership and control in firms. An entrepreneur hires a worker, whose effort is necessary for running a project. The worker's effort determines the probability that the project will be completed on time, but the worker...

This paper analyzes executive compensation in a setting where managers may take a costly action to manipulate corporate performance, and whether managers do so is stochastic. We show that an increase in the possibility of manipulation actually calls for executive pay to be more responsive to...

The paper investigates the optimal structure of executive compensation with the possibility of financial data manipulation. We characterize the optimal compensation contract analytically, and establish necessary and sufficient conditions for earnings management to occur. The model shows that the...

This paper analyzes executive compensation in a setting where managers may take a costly action to manipulate corporate performance, and whether managers do so is stochastic. We examine how the opportunity to manipulate affects the optimal pay contract, and establish necessary and sufficient...

This chapter provides a critical review and survey of aspects of formal and informal contracting particularly relevant to the study of corporate governance. Two types of modeling, hidden-information agency and informal (relational) contracting that are perhaps under-utilized in governance...

Boards of directors face the twin task of disciplining and screening executives. To perform these tasks directors do not have detailed information about executives' behaviour, and only infrequently have information about the success or failure of initiated strategies, reorganizations, mergers...