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Shareholder Heterogeneity, Asymmetric Information, and the Equilibrium Manager

Milo Bianchi (), Rose-Anne Dana and Elyès Jouini

No 21-1181, TSE Working Papers from Toulouse School of Economics (TSE)

Abstract: Consider a Örm owned by shareholders with heterogeneous beliefs and discount rates who delegate to a manager the choice of a production plan. The shareholders and the manager can trade contingent claims in a complete asset market. Shareholders cannot observe the chosen production plan and design a compensation scheme so that at equilibrium the manager chooses the plan they prefer and reveals it truthfully. We show that at equilibrium i) proÖt is maximized, ii) the manager gets a constant share of production, iii) she has no incentive to trade. We then show that such equilibrium exists if and only if the manager has the same belief and discount rate as the representative shareholder. This allows us to characterize the required characteristics of the manager as a function of shareholdersí characteristics.

Keywords: heterogeneous shareholders; asymmetric information; manager-shareholders equilibrium (search for similar items in EconPapers)
JEL-codes: G32 G34 D24 D51 D53 D70 (search for similar items in EconPapers)
Date: 2021-01-27
New Economics Papers: this item is included in nep-mic
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