We study moral judgments regarding budgetary slack made by participants at the end of a participative budgeting experiment in which an expectation for a truthful budget was present. We find that participants who set budgets under a slack-inducing pay scheme, and therefore built relatively high...

This paper proposes a dynamic theory of capital budgeting and compensation when investment information is decentralized and division manager can inefficiently deploy capital. The incentive cost and firm policies vary monotonically with stored liquidity. After bad performances, liquidity is low,...

This paper studies how division managers' access to venture capital (VC) markets affects the internal capital allocation decision of a multi-division firm. Division managers may leave firms and seek venture financing if their project ideas are not funded by headquarters. A successful new venture...

This paper examines how the firm's choice of investment horizon interacts with rent-seeking by privately-informed, multi-tasking managers and the labor market. There are two main results. First, managers prefer longer-horizon projects that permit them to extract higher rents from firms, so...

Existing literature emphasizes skills-based explanations for executive-firm matching, namely in the context of financial expertise. In contrast, our paper argues that informational concerns may also be relevant. We model a public firm with a project opportunity of uncertain quality, where...

We examine how compensation of chief executive officer (CEO) and corporate governance practices affect earnings management behavior in an emerging economy, Pakistan. Using 1836 firm-year observations from 260 firms listed in KSE for period 2005 to 2012, we do not find that CEO compensation has...

Using the transition of US firms from annual reporting to semi-annual reporting and then to quarterly reporting over the period 1950-1970, we provide evidence on the effects of increased reporting frequency on firms' investment decisions. Estimates from difference-in-differences specifications...

This note deals with the simplified case of a principal (e.g., a firm's board of directors) which delegates execution of an economic activity to a business unit (or a subsidiary firm) managed by a manager. It is assumed that the manager has no control over the cash flows injected into the unit...

US CEOs hold a large amount of equity that is not explicitly constrained by ownership guidelines or vesting requirements. Although the average CEO receives a risk premium in his annual pay for holding unconstrained equity, most CEOs hold more equity than is compensated by the risk premium in...

This paper examines the link between managerial overconfidence, conservative accounting and investment. Using Japanese firm data, we estimate a q investment model incorporating real options effects. Consistent with prior studies, we find that managerial overconfidence increases investment--cash...