267 research outputs found
Ownership Concentration and Corporate Performance on the Budapest Stock Exchange: Do too Many Cooks Spoil the Goulash?
The theory of the firm and its critics: a stocktaking and assessment
Includes bibliographical references."Prepared for Jean-Michel Glachant and Eric Brousseau, eds. New Institutional Economics: A Textbook, Cambridge, Cambridge University Press.""This version: August 22, 2005."Since its emergence in the 1970s the modern economic or Coasian theory of the
firm has been discussed and challenged by sociologists, heterodox economists, management
scholars, and other critics. This chapter reviews and assesses these critiques, focusing on behavioral
issues (bounded rationality and motivation), process (including path dependence and the selection argument), entrepreneurship, and the challenge from knowledge-based
theories of the firm
Extrinsic Rewards and Intrinsic Motives: Standard and Behavioral Approaches to Agency and Labor Markets
Keeping the Board in the Dark: CEO Compensation and Entrenchment
We study a model in which a CEO can entrench himself by hiding information from the
board that would allow the board to conclude that he should be replaced. Assuming that
even diligent monitoring by the board cannot fully overcome the information asymmetry visà-
vis the CEO, we ask if there is a role for CEO compensation to mitigate the inefficiency.
Our analysis points to a novel argument for high-powered, non-linear CEO compensation
such as bonus pay or stock options. By shifting the CEO’s compensation into states where the firm’s value is highest, a high-powered compensation scheme makes it as unattractive as possible for the CEO to entrench himself when he expects that the firm’s future value under his management and strategy is low. This, in turn, minimizes the severance pay needed to induce the CEO not to entrench himself, thereby minimizing the CEO’s informational rents. Amongst other things, our model suggests how deregulation and technological changes in the 1980s and 1990s might have contributed to the rise in CEO pay and turnover over the same period
Optimal Opacity on Financial Markets
We analyze the incentives for information disclosure in financial markets. We show that borrowers may have incentives to voluntarily withhold information and that doing so is most attractive for claims that are inherently hard to value, such as portfolios of subprime mortgages. Interestingly, opacity may be optimal even though it increases informational asymmetries between contracting parties. Finally, in our setting a government can intervene in ways that ensure the liquidity of financial markets and that resemble the initial plans for TARP. Even if such interventions are ex-post optimal, they affect incentives for information disclosure and have ambiguous ex-ante effects
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