Journal of Economic Theory and Econometrics: Journal of the Korean Econometric Society
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Journal of Economic Theory and Econometrics
JETEM/계량경제학보/計量經濟學報/JKES
Journal of the Korean Econometric Society

Market-Based Executive Compensation Contract under Endogenous Information Acquisition

Vol.30, No.3, September , 1–49



  •   (POSTECH)

  •   (Kyungpook National University)

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Abstract  

The study investigates how a publicly traded firm's liquidation value and stock price are used in an executive compensation contract when information acquisition in the asset market is endogenized. If the inside owner offers marketbased compensation contract to the risk-averse manager, the inside owner expects higher utility than when stock prices are excluded from the contract. If information cost displays an intermediate value, changes in the exogenous parameters generate the direct effect and the indirect effect via the information market. Finally, we find that the market-based compensation contract contributes to the increase of social welfare.


Keywords
   market-based executive compensation; information acquisition

JEL classification codes
   G30, D86
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