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INFORMATION EXTERNALITIES, SHARE‐PRICE BASED INCENTIVES AND MANAGERIAL BEHAVIOUR
Author(s) -
Grant Simon,
King Stephen,
Polak Ben
Publication year - 1996
Publication title -
journal of economic surveys
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 1.657
H-Index - 92
eISSN - 1467-6419
pISSN - 0950-0804
DOI - 10.1111/j.1467-6419.1996.tb00001.x
Subject(s) - incentive , perfect information , externality , economics , microeconomics , shareholder , information transmission , information asymmetry , value (mathematics) , information flow , action (physics) , information economics , business , industrial organization , finance , corporate governance , computer network , linguistics , philosophy , physics , quantum mechanics , machine learning , computer science
. We survey recent theoretical research on the effects of short‐term share‐price based managerial incentive schemes. Such schemes can induce inefficient managerial behaviour in both hidden action and hidden type contexts. These problems arise from informational asymmetries: managers take actions to manipulate the information flow rather than to maximize firm value. More generally, imperfect transmission of information between managers and shareholders or between managers of different firms can lead to similar distortions even when the parties' interests are aligned.