Managerial Compensation and the Market Reaction to Bank Loans

Javier Suarez and Andres Almazan

No 2643, CEPR Discussion Papers from Centre for Economic Policy Research

Abstract: This Paper considers why a manager would choose to submit himself to the discipline of bank monitoring. This issue is analysed within the context of a model where the manager enjoys private benefits, which can be restricted by the monitor, and is optimally compensated by shareholders. Within this setting, we find that managers will submit to monitoring when they receive favourable private information. This result is consistent with event study evidence that suggests that the market has a favourable view of financing choices that increase monitoring.

Keywords: Monitoring; Managerial compensation; Optimal contracts; Banks (search for similar items in EconPapers)
JEL-codes: G32 G34 (search for similar items in EconPapers)
Date: 2000-12
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Citations: View citations in EconPapers (1)

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Related works:
Journal Article: Managerial Compensation and the Market Reaction to Bank Loans (2003)
Working Paper: Managerial Compensation and the Market Reaction to Bank Loans (2001)
Working Paper: Managerial Compensation and the Market Reaction to Bank Loans (2001)
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