This paper studies a setting in which a risk averse agent must be motivatedto work on two tasks: he (1) evaluates a new project and, if adopted, (2)manages it. While a performance measure which is informative of an agent’saction is typically valuable because it can be used to improve the risk...

This paper analyzes the optimal design of stock option vesting conditions when the CEO faces a risk of being replaced at an interim date. First, I show that long vesting terms do not necessarily discourage but in fact can encourage short-termism. Second, the model demonstrates that the optimal...

Corporations have been criticized for providing executives with excessive incentives to focus on short-term performance. This paper shows that investment in short-term projects has beneficial effects in that it provides early feedback about CEO talent, which leads to more efficient CEO...

This article examines the costs and benefits of permitting executives to use inside information to time their stock option exercises. Whereas prior research has focused on the negative effects of timing discretion, I show that such discretion can have beneficial incentive effects in that it...

The accounting profession has raised concerns that excessive liability exposure renders audit firms unwilling to provide audit services to risky clients, limiting the prospective clients' ability to raise external capital. We address this concern in a model in which the auditor evaluates the...

Earnings reports are informative about a firm's current performance but convey little information about the prospects of the firm's long-term vision. We show that entrepreneurs can signal favorable private information about their long-term prospects by choosing an accounting system that upward...

We analyze the effect of committee formation on how corporate boards perform two main functions: setting CEO pay and overseeing the financial reporting process. The use of stock-based pay schemes induces the CEO to manipulate earnings, which leads to an increased need for board oversight. If the...