Managerial compensation as a double-edged sword: Optimal incentives under misreporting
Author
dc.contributor.author
Loyola Fuentes, Gino
Author
dc.contributor.author
Portilla, Yolanda
Admission date
dc.date.accessioned
2021-01-27T20:04:11Z
Available date
dc.date.available
2021-01-27T20:04:11Z
Publication date
dc.date.issued
2020
Cita de ítem
dc.identifier.citation
International Review of Economics and Finance 69 (2020) 994–1017
es_ES
Identifier
dc.identifier.other
10.1016/j.iref.2020.04.007
Identifier
dc.identifier.uri
https://repositorio.uchile.cl/handle/2250/178373
Abstract
dc.description.abstract
A well-known prescription in corporate governance is that high-powered incentive contracts such as performance bonuses are an optimal mechanism for aligning managers with shareholders on an efficient investment policy. However, if managers are able to manipulate profits in order to obtain the bonuses, such contracts become a double-edged sword. An agency model is proposed to analyze how compensation plans should be designed to counteract these perverse incentives while preserving the primary managerial incentives to select optimal investment projects. Implications of the results for real-world executive incentive plans are discussed and an analysis is conducted of regulatory policies such as penalties and bonus caps.