Own-company stockholding and work effort preferences of an unconstrained executive

Sascha Desmettre (), John Gould () and Alexander Szimayer ()

Mathematical Methods of Operations Research, 2010, vol. 72, issue 3, 347-378

Abstract: We develop a framework for analyzing an executive’s own-company stockholding and work effort preferences. The executive, characterized by risk aversion and work effectiveness parameters, invests his personal wealth without constraint in the financial market, including the stock of his own company whose value he can directly influence with work effort. The executive’s utility-maximizing personal investment and work effort strategy is derived in closed form, and a utility indifference rationale is applied to determine his required compensation. Being unconstrained by performance contracting, the executive’s work effort strategy establishes a base case for theoretical or empirical assessment of the benefits or otherwise of constraining executives with performance contracting. Copyright Springer-Verlag 2010

Keywords: Optimal portfolio choice; Executive compensation; 49L20; 91B28; 91B16 (search for similar items in EconPapers)
Date: 2010
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Citations: View citations in EconPapers (2)

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DOI: 10.1007/s00186-010-0322-5

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