Financial structure, Managerial Compensation and Monitoring

Vittoria Cerasi () and Sonja Daltung ()
Additional contact information
Sonja Daltung: Financial Institutions and Markets, Ministry of Finance, Financial Law and Economics Division, Postal: S-103 33 Stockholm, Sweden

No 207, Working Paper Series from Sveriges Riksbank (Central Bank of Sweden)

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 and lower company diversification. These predictions find some support in the empirical literature.

Keywords: Keywords: Managerial Compensation; Financial Structure; Monitoring; Diversification. (search for similar items in EconPapers)
JEL-codes: G32 M12 (search for similar items in EconPapers)
New Economics Papers: this item is included in nep-bec and nep-cfn
Date: 2007-06-01
View list of references

Downloads: (external link)
http://www.riksbank.se/upload/Dokument_riksbank/Ka ... kingPapers/wp207.pdf (application/pdf)

Related works:
Working Paper: Financial structure, managerial compensation and monitoring (2006)
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: http://EconPapers.repec.org/RePEc:hhs:rbnkwp:0207

Access Statistics for this paper

More papers in Working Paper Series from Sveriges Riksbank (Central Bank of Sweden)
Address: Sveriges Riksbank, SE-103 37 Stockholm, Sweden
Contact information at EDIRC.
Series data maintained by Lena Löfgren ().