Economics at your fingertips  

Performance-based bonuses for investment and abandonment decisions

Hwa-Sung Kim

Finance Research Letters, 2016, vol. 18, issue C, 120-126

Abstract: This paper examines whether a performance-based bonus for a manager’s investment influences her abandonment decision. First, we derive optimal performance-based bonuses for investment and abandonment decisions. Second, we show that there could be a discrepancy between the managers abandonment timing and that of the shareholders, even though an appropriate performance-based bonus was compensated to mitigate agency conflicts in the investment decision. Third, we also show that as long as the manager is contracted to receive the optimal performance-based bonus for the abandonment decision, only the effort costs that she incurs affect the abandonment timing.

Keywords: Real option; Investment decision; Abandonment decision; Agency problem; Performance-based bonus (search for similar items in EconPapers)
JEL-codes: D81 D86 G31 J33 (search for similar items in EconPapers)
Date: 2016
References: View references in EconPapers View complete reference list from CitEc
Citations Track citations by RSS feed

Downloads: (external link)
Full text for ScienceDirect subscribers only

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:

Access Statistics for this article

Finance Research Letters is currently edited by R. Gençay

More articles in Finance Research Letters from Elsevier
Series data maintained by Dana Niculescu ().

Page updated 2018-01-24
Handle: RePEc:eee:finlet:v:18:y:2016:i:c:p:120-126