Managerial compensation, product market competition and fraud

Rainer Andergassen

International Review of Economics & Finance, 2016, vol. 45, issue C, 1-15

Abstract: We study a model in which a manager can engage in unobservable cost-cutting effort, possesses private information about firm profits and where shareholders employ stock and stock option-based compensation packages to align the manager's interests with theirs. Stock-based incentives may induce the manager to misrepresent profits with the aim to increase the firm's stock price and hence her compensation. Common wisdom holds that competition disciplines the manager. We investigate how product market competition affects the shareholders' trade-off between fraud and effort and hence incentive provision.

Keywords: Executive compensation; Fraud; Incentives; Product market competition; Stock and stock options (search for similar items in EconPapers)
JEL-codes: D82 G30 J33 L1 (search for similar items in EconPapers)
Date: 2016
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Citations: View citations in EconPapers (9)

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Persistent link: https://EconPapers.repec.org/RePEc:eee:reveco:v:45:y:2016:i:c:p:1-15

DOI: 10.1016/j.iref.2016.04.010

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