Prior studies have characterized Verrecchias (1983) discretionary disclosure costs mainly in terms of competitive concerns. This study shows that separating the managers and the shareholders into two separate, self-interested beings also leads to disclosure costs, precluding discretionary...

Externally mediated outcomes are frequently used to encourage managers to enhance their performance. The literature argues that performance-contingent rewards, and especially financial ones, have a motivating effect on performance. One presumption is that differences in pay levels are...

In 1991, defense contractor General Dynamics engaged a new management team which adopted an explicit corporate objective of creating shareholder value. The company tied executive compensation to shareholder wealth creation, and subsequently implemented a strategy that included downsizing,...

We report the results of an experiment designed to examine investment project selection under promotion incentives, modeled as tournament contracts. For a given expected return, the owner prefers investments with lower systematic risk. Therefore, to the extent managers select investments other...

This paper considers incentive provisions for a manager who makes investment decisions. The manager's performance measure can be based on current accounting information, cash flow, depreciation, book value, and current investment. We argue that Residual Income is the unique (linear) performance...

This paper provides a formal analysis of how managerial investment incentives are affected by alternative allocation rules when managerial compensation is based on accounting measures of income that include allocations for investment expenditures. The main result is that there exists a unique...

We empirically evaluate 20 prominent contributions to a broad range of areas in the empirical corporate finance literature. We assemble the necessary data and apply a single, simple econometric method, the connected-groups approach of Abowd, Karmarz, and Margolis (1999), to appraise the extent...

This study examines whether and how the terms of CEO compensation contracts at large, publicly traded commercial banks between 1994 and 2006 influenced, and were influenced by, the risk-profiles of these firms. We find evidence linking contractual risk-taking incentives, which we proxy with...

Using a comprehensive sample of US banks for years 2001 to 2016, we split the pay gap between the CEO and rank-and-file employees into two: CEO pay gap and VP pay gap. We examine the effect on bank performance of the tournament incentives arising from these different pay gaps. We find that CEO...

IPO firms with high-powered CEO incentive contracts have lower failure rates in the aftermarket. Economically, an interquartile change in the distribution of CEO pay translates in a reduction of the failure risk probability by approximately 21%. The Pay Gap between the CEO and its subordinate...