When a firm has external debt and monitoring by shareholders is essential, managerial bonuses are shown to be an optimal solution. A small managerial bonus linked to firm's performance not only reduces moral hazard between managers and shareholders, but also between creditors and monitoring shareholders. A negative relation between corporate bond yields and managerial bonuses can be predicted. Furthermore, the model shows how higher managerial pay-performance sensitivity goes hand in hand with greater company leverage. These predictions find support in the empirical literature

Cerasi, V., Daltung, S. (2007). Financial Structure, Managerial Compensation and Monitoring. Financial Markets Group, London School of Economics.

Financial Structure, Managerial Compensation and Monitoring

Cerasi, V;
2007

Abstract

When a firm has external debt and monitoring by shareholders is essential, managerial bonuses are shown to be an optimal solution. A small managerial bonus linked to firm's performance not only reduces moral hazard between managers and shareholders, but also between creditors and monitoring shareholders. A negative relation between corporate bond yields and managerial bonuses can be predicted. Furthermore, the model shows how higher managerial pay-performance sensitivity goes hand in hand with greater company leverage. These predictions find support in the empirical literature
Monografia o trattato scientifico - Monografia di Ricerca - Prima edizione
managerial compensation; financial structure; monitoring; diversification
English
2007
Financial Markets Group, London School of Economics
https://papers.ssrn.com/sol3/papers.cfm?abstract_id=948728
Cerasi, V., Daltung, S. (2007). Financial Structure, Managerial Compensation and Monitoring. Financial Markets Group, London School of Economics.
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Utilizza questo identificativo per citare o creare un link a questo documento: https://hdl.handle.net/10281/800
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