Financial innovations and managerial incentive contracting

Saltuk Ozerturk

Canadian Journal of Economics, 2006, vol. 39, issue 2, 434-454

Abstract: The top executives' demands for financial instruments that enable them to hedge the risk exposure in their compensation has increased drastically in the last decade. We analyse the implications of a manager's hedging ability for effort incentives. We show that if the manager's hedging opportunity is limited to a known fixed number of trading rounds with risk-neutral third parties, then the equilibrium effort is not affected at all. If the manager has the opportunity to hedge without committing to a last trading round, however, she hedges completely and no effort incentives can be sustained. Therefore, limiting the manager's opportunity to hedge to a fixed known number of trading rounds is crucial for sustaining incentives.

JEL-codes: G30 G32 (search for similar items in EconPapers)
Date: 2006
References: Add references at CitEc
Citations: View citations in EconPapers (5)

Downloads: (external link)
https://doi.org/10.1111/j.0008-4085.2006.00354.x (text/html)
access restricted to subscribers

Related works:
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:cje:issued:v:39:y:2006:i:2:p:434-454

Ordering information: This journal article can be ordered from
https://www.economic ... ionen/membership.php

Access Statistics for this article

Canadian Journal of Economics is currently edited by Zhiqi Chen

More articles in Canadian Journal of Economics from Canadian Economics Association Canadian Economics Association Prof. Werrner Antweiler, Treasurer UBC Sauder School of Business 2053 Main Mall Vancouver, BC, V6T 1Z2. Contact information at EDIRC.
Bibliographic data for series maintained by Prof. Werner Antweiler ().