THE CARROT: EXECUTIVE COMPENSATION, RISK-TAKING, AND INNOVATION

Arnav Sheth

《Advances in Quantitative Analysis of Finance and Accounting》 15期 (2017/12) Pp. 1-19

https://doi.org/10.6293/AQAFA.201712_15.0001

摘要

Managers of firms with excess cash tend to misuse it. We extend the Radner-Shepp-Shiryaev framework, to create an incentive mechanism (the ＂carrot＂) to motivate managers to pay out the cash instead. The problem cannot be solved in closed-form, and we devise a numerical technique to solve it. We find two main counter intuitive results: First, our mechanism results in higher firm value, and the greatest value goes to firms that are mid-level in their innovation. Second, we find that our mechanism increases risk-taking and interestingly, this is optimal to firm value maximization.

關鍵字

Agency Costs ； Executive Compensation ； Innovation ； Stochastic Control ； Numerical Techniques ； Brownian Motion

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