Optimal Managerial Contracts with Self-Esteem Concerns When Managers Can Hedge

Chongwoo Choe, Donald Lien and Chia-Feng (Jeffrey) Yu ()

No 49-13, Monash Economics Working Papers from Monash University, Department of Economics

Abstract: We study an optimal contracting problem when the manager has self-esteem concerns and access to a hedging market. We show that the manager's equilibrium hedging position increases when he is more risk-averse, more uncertain about his own ability, or has stronger self-esteem concerns. Each element of managerial hedging and self-esteem concerns added to an otherwise standard agency model increases the equilibrium pay-performance sensitivity. The agency cost increases as the manager's self-esteem concerns become stronger, but the manager's access to hedging opportunities itself does not change the agency cost. We also provide conditions for the positive relationship between risk and incentives.

Keywords: Managerial Hedging; Executive Compensation; Self-Esteem. (search for similar items in EconPapers)
JEL-codes: D86 G02 G32 (search for similar items in EconPapers)
Pages: 24 pages
Date: 2013-07
References: Add references at CitEc
Citations:

Downloads: (external link)
http://www.buseco.monash.edu.au/eco/research/papers/2013/index.html (application/pdf)
Our link check indicates that this URL is bad, the error code is: 403 Forbidden (http://www.buseco.monash.edu.au/eco/research/papers/2013/index.html [301 Moved Permanently]--> https://www.monash.edu/business/ [301 Moved Permanently]--> https://www.monash.edu/business)

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:mos:moswps:2013-49

Ordering information: This working paper can be ordered from
https://www.monash.e ... esearch/publications

Access Statistics for this paper

More papers in Monash Economics Working Papers from Monash University, Department of Economics Department of Economics, Monash University, Victoria 3800, Australia. Contact information at EDIRC.
Bibliographic data for series maintained by Simon Angus ().