Public Reports, Information Acquisition by Investors, and Management Incentives

Gerald A. Feltham and Martin G. H. Wu
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Gerald A. Feltham: University of British Columbia
Martin G. H. Wu: University of British Columbia

Review of Accounting Studies, 2000, vol. 5, issue 2, No 3, 155-190

Abstract: Abstract This paper initially provides a general characterization of the relative weight assigned to two performance measures in an optimal linear compensation contract in a two-task principal/agent setting. This characterization is applied to a setting in which the measures are a public report about the firm's performance (e.g., accounting earnings) and its market price. The latter reflects the public report and non-contractible investor information, whose costly acquisition is endogenously determined. The analysis considers both the gross observed price and the filtered price, which excludes the effect of the public report and represents a contractible noisy measure of the investors' non-contractible information.

Keywords: Market Price; Relative Weight; Costly Acquisition; Information Acquisition; Public Report (search for similar items in EconPapers)
Date: 2000
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DOI: 10.1023/A:1009652723935

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