Bonuses and Non-Public Information in Publicly Traded Firms

Rachel M. Hayes () and Scott Schaefer ()
Additional contact information
Rachel M. Hayes: University of Utah
Scott Schaefer: University of Utah

Review of Accounting Studies, 2005, vol. 10, issue 4, No 3, 464 pages

Abstract: Abstract Recent research in accounting explores how firms use “individual” or “non-financial” measures of performance in executive compensation contracts. We model a firm that conditions bonus payments to executives on information that is not available to those outside the firm. This raises two issues. First, market participants may use the magnitude of such payments to infer the non-public information. Second, because information that is non-public is, by extension, non-verifiable, the firm cannot write explicit contracts based on it. Combining the relational incentive contracts and financial signaling literatures, we examine equilibria of a signaling game in which bonus payments from a firm to a manager convey non-public information regarding the firm’s future cash flows. Our main result is that increases in corporate myopia can, under some conditions, lead to increased profits. This finding is contrary to that typically found in financial signaling models.

Keywords: CEO compensation; Implicit contracts; Financial signaling; J33; M52 (search for similar items in EconPapers)
Date: 2005
References: Add references at CitEc
Citations:

Downloads: (external link)
http://link.springer.com/10.1007/s11142-005-4209-2 Abstract (text/html)
Access to the full text of the articles in this series is restricted.

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:spr:reaccs:v:10:y:2005:i:4:d:10.1007_s11142-005-4209-2

Ordering information: This journal article can be ordered from
http://www.springer.com/accounting/journal/11142

DOI: 10.1007/s11142-005-4209-2

Access Statistics for this article

Review of Accounting Studies is currently edited by Paul Fischer

More articles in Review of Accounting Studies from Springer
Bibliographic data for series maintained by Sonal Shukla () and Springer Nature Abstracting and Indexing ().