To Cover Up or Not? Executive's Incentives and the Optimal Compensation Contract
Date Issued
2006
Date
2006
Author(s)
Lo, Te-Chien
DOI
en-US
Abstract
We develop a two-tier agency model that shows how the compensation contract designed by the shareholder for the executive affects the executive’s monitoring and shareholders’ payoff in equilibrium. Empirically, the executive may be blamed and punished for not catching the employee who takes the destroying risky project in advance, called “Joint Responsibility”. Our findings suggest that joint responsibility may not be a good strategy; as long as stopping the risky project benefits more than not stopping it, the shareholder should provide incentives for the executive to stop the risky project at any time. Besides, static comparative analyses show that the changes of the loss of risky projects’ bad outcome, the rent transferred from the employee to the executive, and the constant of the monitoring cost, will affect the optimal compensation contract for the executive, the monitoring of the executive and shareholders’ payoff in equilibrium.
Subjects
勾結行為
薪資契約
Cover Up
the Compensation Contract
Type
thesis
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