This paper studies the value of more precise signals on agent performance in an optimal contracting model with endogenous effort. With limited liability, the agent's wage is increasing in output only if output exceeds a threshold, else it is zero regardless of output. If the threshold is...

This paper extends a standard principal-agent model of CEO compensation by modeling the progressive attenuation of information asymmetries about firm value by shareholders in continuous time. The dynamics of the stock price process are affected by the continuous accumulation of exogenous shocks,...

We consider a model of CEO selection, dismissal and retention. Firms with larger blockholder ownership monitor more; they get more information about CEO ability, which facilitates the dismissal of low-ability CEOs. These firms are matched with CEOs whose ability is more uncertain. For retention...

Shareholders with standard monetary preferences will give a manager incentives to increase firm profits, which can be achieved with equity grants. When shareholders are socially responsible, in the sense that they also value corporate social performance, it is not clear which incentives the...

This paper analyzes the effects of two regulatory mechanisms, namely a regulation of the structure of bank CEOs incentive pay and sanctions for the CEOs of failed banks, on bank risk shifting. We extend a standard model of CEO compensation by incorporating leverage and an investment decision. To...

This paper shows that the informativeness principle does not automatically extend to settings with limited liability. Even if a signal is informative about effort, it may have no value for contracting. An agent with limited liability is paid zero for certain output realizations. Thus, even if...

This paper shows that the informativeness principle, as originally formulated by Holmstrom (1979), does not hold if the first-order approach is invalid. We introduce a "generalized informativeness principle" that takes into account non-local incentive constraints and holds generically, even...

The informativeness principle demonstrates qualitative benefits to increasing signal precision. However, it is difficult to quantify these benefits -- and compare them against the costs of precision -- since we typically cannot solve for the optimal contract and analyze how it changes with...

Existing theories of debt consider a single contractible performance measure ("output"). In reality, many other performance signals are also available. It may seem that debt is no longer optimal; for example, if the signals are sufficiently positive, the agent should receive a payment even if...