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Competition for talent under performance manipulation

Iván Marinovic and Paul Povel ()

Journal of Accounting and Economics, 2017, vol. 64, issue 1, 1-14

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.

Keywords: Executive compensation; Competition for talent; Adverse selection; Moral hazard; Misreporting; Performance manipulation; Earnings management (search for similar items in EconPapers)
Date: 2017
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Journal of Accounting and Economics is currently edited by J. L. Zimmerman, S. P. Kothari, T. Z. Lys and R. L. Watts

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