Essays in banking and corporate finance

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Serval ID
serval:BIB_56E115F4A054
Type
PhD thesis: a PhD thesis.
Collection
Publications
Title
Essays in banking and corporate finance
Author(s)
Niu J.
Director(s)
Morellec E.
Institution details
Université de Lausanne, Faculté des hautes études commerciales
Publication state
Accepted
Issued date
07/2007
Language
english
Number of pages
93
Abstract
Abstract
This paper presents a model of executive compensation in which the executive is risk-averse and has specific knowledge -knowledge about the optimal actions to take that is costly to transfer to the principal. The model generates predictions that are consistent with the available evidence and provides a rationale for a number of unresolved puzzles in executive compensation. Notably, we find that relative performance evaluation is optimal only if the quality of specific knowledge is low. We also show (1) why some common risk components are not filtered out of executives' pay, (2) why performance is more likely to be evaluated relative to aggregate market movements than relative to industry movements, and (3) why executives with higher perceived abilities are given stronger incentives. Finally, we demonstrate that the relation between risk and incentives may be positive or negative, depending on the quality of the executive's specific knowledge.
Keywords
Specific knowledge, Compensation
Create date
15/07/2010 13:35
Last modification date
20/08/2019 15:11
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