 Contracting on the Stock Price and Forward-Looking Performance MeasuresShane Dikolli and Igor Vaysman European Accounting Review, 2006, vol. 15, issue 4, 445-464 Abstract: We examine the use of earnings, forward-looking performance measures and stock prices in managerial compensation. When the firm's owner and its manager have identical time preferences, the stock price is not useful for motivating the manager, as it is a noisy aggregation of a forward-looking measure and future earnings. In contrast, when the owner and the manager have conflicting time preferences, the noisy stock price is useful for contracting. If the manager has no access to banking and cannot trade the firm's shares, the timeliness of the stock price dominates the extra risk imposed by its noise. At the same time, forward-looking performance measures (such as customer satisfaction) can induce a desirable allocation of management effort between the short term and long term more efficiently than the stock price can. Forward-looking performance measures and the stock price are thus not direct substitutes in rewarding farsighted effort. Date: 2006 Downloads: (external link) Related works: Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text Persistent link: https://EconPapers.repec.org/RePEc:taf:euract:v:15:y:2006:i:4:p:445-464 Ordering information: This journal article can be ordered from DOI: 10.1080/09638180601101992 Access Statistics for this article European Accounting Review is currently edited by Laurence van Lent More articles in European Accounting Review from Taylor & Francis Journals |
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