Implicit Contracts, Managerial Incentives and Financial Structure

Roberta Dessi

FMG Discussion Papers from Financial Markets Group

Abstract: This paper examines how managers may be given appropriate incentives to (a) provide effort, and (b) implement efficient implicit contracts with workers. Under certain assumptions, this can be achieved by tying managerial compensation to shareholder value. However, if reputation effects are weak, it can be more efficient to adopt an incentive scheme in which the manager is replaced if performance falls below a critical level, and otherwise retains control, receiving a fixed reward. The required managerial replacement policy can be implemented through a financial structure combining ¶hard¶ debt with a relatively dispersed ownership structure.KeyWords: principal-agent, incentives, implicit contracts, debt.

Date: 1997-10
References: Add references at CitEc
Citations:

Downloads: (external link)
http://www.lse.ac.uk/fmg/workingPapers/discussionPapers/fmg_pdfs/dp279.pdf (application/pdf)

Related works:
Journal Article: Implicit Contracts, Managerial Incentives, and Financial Structure (2001)
Working Paper: Implicit contracts, managerial incentives and financial structure (1997)
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: https://EconPapers.repec.org/RePEc:fmg:fmgdps:dp279

Access Statistics for this paper

More papers in FMG Discussion Papers from Financial Markets Group
Bibliographic data for series maintained by The FMG Administration ().