For example, the model predicts that the optimal debt contract for firms with relatively strong (weak) corporate governance (i.e., cost of manipulation) induces overinvestment (underinvestment). Moreover, for firms with strong (weak) corporate governance, an increase in corporate governance quality leads to tighter (looser) covenant, more (less) frequent covenant violations and lower (higher) interest rate. Our model highlights that the interest rate, which is a common proxy for the cost of

Keywords: executive compensation; CEO incentives; optimal contracting manager to expend firm resources to manipulate the stock price upwards.6 optimal contract will reward the manager for good sector performance but not punish. 10 Sep 2019 The trend has been towards contracts with the agent that link compensation directly to performance measurements set by the principal. 27 Sep 2019 the agent's payoff under the optimal contract might have both linear and strictly concave gaming: manipulating the timing of output. as an endogenous performance measure; see, for example, Halac and Prat (2016) and. We analyze the optimal contract in static moral hazard situ% ations, where the agentns manipulate the outcome. For example, if the lated shocks ( informational linkage) or whether the performance of an agent depends on the effort of other 

pay on long( versus short(term performance and show how manipulation, and optimal contract if long(term volatility is substantial or if the manager is very risk 

ABSTRACT. We study optimal compensation contracts that (1) are designed to address a joint moral hazard and adverse selection problem and that (2) are based on performance measures, which may be manipulated by the agent at a cost. In the model, a manager is privately informed about his productivity prior to being hired by a firm. This paper studies optimal contracts when managers manipulate their performance measure at the expense of firm value. Optimal contracts defer compensation. The manager's incentives vest over time We study optimal compensation contracts that (1) are designed to address a joint moral hazard and adverse selection problem and that (2) are based on performance measures, which may be manipulated by the agent at a cost. In the model, a manager is privately informed about his productivity prior to being hired by a firm. In order to incentivize the manager to exert productive effort, the firm designs a compensation contract that is based on reported earnings, which can be manipulated by the Optimal Contracts with Performance Manipulation In the model, a manager is privately informed about his productivity prior to being hired by a firm. In order to incentivize the manager to exert productive effort, the firm designs a compensation contract that is based on reported earnings, which can be manipulated by the manager. In equilibrium, the firm either implements a perfect or an uninformative system. The information system and the pay-performance sensitivity (PPS) of the compensation contract can be substitutes in a sense that the firm optimally combines a perfect information system with a low PPS or an uninformative system with a high PPS. Because the information design is endogenous, firms facing relatively high manipulation threat may offer financial incentives that are higher-powered than the ones

15 Mar 2006 several ways to manipulate a performance measure and the second with derivative contracts, any portfolio, even an ex ante optimal one, can 

For example, the model predicts that the optimal debt contract for firms with relatively strong (weak) corporate governance (i.e., cost of manipulation) induces overinvestment (underinvestment). Moreover, for firms with strong (weak) corporate governance, an increase in corporate governance quality leads to tighter (looser) covenant, more (less) frequent covenant violations and lower (higher) interest rate. Our model highlights that the interest rate, which is a common proxy for the cost of The firm can make a take-it-or-leave-it offer, and it finds it optimal to distort the incentive power of the contract intended for a low-talent CEO, in order to extract some of the payoff a high-talent CEO would earn if the firm offered efficient contracts. the cost of manipulation is high (high quality of corporate governance) the optimal debt contract gives rise to over-continuation of the investment project. When the cost of manipulation is low and the precision of firm’s private signal is intermediate the contract induces over-termination of the investment, which may initially seem Debt contracts in the presence of performance manipulation Article in Review of Accounting Studies 23(3) · June 2018 with 12 Reads How we measure 'reads' "Debt Contracts in the Presence of Performance Manipulation" (with Ilan Guttman) Review of Accounting Studies. "CEO Horizon, Optimal Pay Duration, and the Escalation of Short-Termism" ( with Felipe Varas ) Journal of Finance.

The firm can make a take-it-or-leave-it offer, and it finds it optimal to distort the incentive power of the contract intended for a low-talent CEO, in order to extract some of the payoff a high-talent CEO would earn if the firm offered efficient contracts.

We study optimal compensation contracts that (1) are designed to address a joint moral hazard and adverse selection problem and that (2) are based on performance measures, which may be manipulated by the agent at a cost. In the model, a manager is privately informed about his productivity prior to being hired by a firm. In order to incentivize the manager to exert productive effort, the firm designs a compensation contract that is based on reported earnings, which can be manipulated by the Optimal Contracts with Performance Manipulation In the model, a manager is privately informed about his productivity prior to being hired by a firm. In order to incentivize the manager to exert productive effort, the firm designs a compensation contract that is based on reported earnings, which can be manipulated by the manager. In equilibrium, the firm either implements a perfect or an uninformative system. The information system and the pay-performance sensitivity (PPS) of the compensation contract can be substitutes in a sense that the firm optimally combines a perfect information system with a low PPS or an uninformative system with a high PPS. Because the information design is endogenous, firms facing relatively high manipulation threat may offer financial incentives that are higher-powered than the ones For example, the model predicts that the optimal debt contract for firms with relatively strong (weak) corporate governance (i.e., cost of manipulation) induces overinvestment (underinvestment). Moreover, for firms with strong (weak) corporate governance, an increase in corporate governance quality leads to tighter (looser) covenant, more (less) frequent covenant violations and lower (higher) interest rate. Our model highlights that the interest rate, which is a common proxy for the cost of The firm can make a take-it-or-leave-it offer, and it finds it optimal to distort the incentive power of the contract intended for a low-talent CEO, in order to extract some of the payoff a high-talent CEO would earn if the firm offered efficient contracts.

Store managers in retail firms are often offered a performance-based compensation scheme accompanied Optimal Contracts with Performance Manipulation.

10 Sep 2019 The trend has been towards contracts with the agent that link compensation directly to performance measurements set by the principal. 27 Sep 2019 the agent's payoff under the optimal contract might have both linear and strictly concave gaming: manipulating the timing of output. as an endogenous performance measure; see, for example, Halac and Prat (2016) and. We analyze the optimal contract in static moral hazard situ% ations, where the agentns manipulate the outcome. For example, if the lated shocks ( informational linkage) or whether the performance of an agent depends on the effort of other  Downloadable (with restrictions)! Work performance is often difficult to assess thus leaving room for manipulation of commonly-used metrics. We created a  15 Mar 2006 several ways to manipulate a performance measure and the second with derivative contracts, any portfolio, even an ex ante optimal one, can 

then try to motivate the Agent: this note analyzes incentive contracts (similar to profit sharing or Pay for Performance: The Basic Principal-Agent Model Note that in this model the salary s does not affect the Agent's optimal action: the slope of the The managers delivered consistent earnings growth by manipulating. Keywords: executive compensation; CEO incentives; optimal contracting manager to expend firm resources to manipulate the stock price upwards.6 optimal contract will reward the manager for good sector performance but not punish. 10 Sep 2019 The trend has been towards contracts with the agent that link compensation directly to performance measurements set by the principal. 27 Sep 2019 the agent's payoff under the optimal contract might have both linear and strictly concave gaming: manipulating the timing of output. as an endogenous performance measure; see, for example, Halac and Prat (2016) and. We analyze the optimal contract in static moral hazard situ% ations, where the agentns manipulate the outcome. For example, if the lated shocks ( informational linkage) or whether the performance of an agent depends on the effort of other  Downloadable (with restrictions)! Work performance is often difficult to assess thus leaving room for manipulation of commonly-used metrics. We created a  15 Mar 2006 several ways to manipulate a performance measure and the second with derivative contracts, any portfolio, even an ex ante optimal one, can