EconPapers    
Economics at your fingertips  
 

Principle or Opportunism? Discretion, Capital, and Incentives

Michel Habib and Josef Falkinger

No 12690, CEPR Discussion Papers from C.E.P.R. Discussion Papers

Abstract: When should shareholders afford a manager the discretion to be opportunistic and when should they constrain him to be principled? We show that discretion is associated with lower powered incentives than is constraint: opportunism may put shareholder capital at risk; shareholder can lessen that risk by lowering the power of managerial incentives, thereby decreasing the manager's incentives to spurn principle for opportunity. We further show that the cost of capital plays a central role in favoring discretion over constraint: the use of capital constitutes an externality; when the cost of capital is low, the externality is of relatively little importance, and the manager is afforded the discretion to be opportunistic.

Date: 2018-02
New Economics Papers: this item is included in nep-hpe
References: View references in EconPapers View complete reference list from CitEc
Citations:

Downloads: (external link)
https://cepr.org/publications/DP12690 (application/pdf)
CEPR Discussion Papers are free to download for our researchers, subscribers and members. If you fall into one of these categories but have trouble downloading our papers, please contact us at subscribers@cepr.org

Related works:
Working Paper: Principle or Opportunism? Discretion, Capital, and Incentives (2017) Downloads
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:cpr:ceprdp:12690

Ordering information: This working paper can be ordered from
https://cepr.org/publications/DP12690

Access Statistics for this paper

More papers in CEPR Discussion Papers from C.E.P.R. Discussion Papers Centre for Economic Policy Research, 33 Great Sutton Street, London EC1V 0DX.
Bibliographic data for series maintained by ().

 
Page updated 2025-03-19
Handle: RePEc:cpr:ceprdp:12690