Article ID Journal Published Year Pages File Type
5086502 Journal of Accounting and Economics 2017 90 Pages PDF
Abstract
We study the effects of introducing competition for CEOs, assuming that the talent of CEOs is not observable and that they can misreport their performance. Without competition for talent, firms maximize their profits by offering inefficiently low-powered incentive contracts. Competition for talent removes those inefficiencies, but it leads to excessively high-powered incentive contracts, causing efficiency losses that can be more severe than the inefficiencies that competition mitigates. If misreporting is not a concern, however, then competition for talent has unambiguously positive effects on efficiency.
Related Topics
Social Sciences and Humanities Business, Management and Accounting Accounting
Authors
, ,