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Incentive Compensation, Valuation, and Capital Market Access

Author

Listed:
  • Helmut Laux
  • Robert M. Gillenkirch
  • Matthias M. Schabel

Abstract

In this paper we consider linear sharing rules for incentive compensation, when principal and agent are potentially restricted from short sales. We derive subjective valuation lines for performance shares, based on graphical analyses, and present results with respect to implementing effort and investment incentives. When the agent is restricted from short sales, he may reject an investment with positive market value, and higher performance shares may not induce proper incentives. relative performance evaluation will improve incentives and risk sharing, but there will generally be no clear definition of a suitable benchmark.

Suggested Citation

  • Helmut Laux & Robert M. Gillenkirch & Matthias M. Schabel, 2009. "Incentive Compensation, Valuation, and Capital Market Access," Schmalenbach Business Review (sbr), LMU Munich School of Management, vol. 61(4), pages 335-360, October.
    • Handle: RePEc:sbr:abstra:v:61:y:2009:i:4:p:335-360
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    More about this item

    Keywords

    Incentive Compensation; Portfolio Allocation; Principal-Agent-Theory; Short Sales;
    All these keywords.

    JEL classification:

    • D86 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Economics of Contract Law
    • G11 - Financial Economics - - General Financial Markets - - - Portfolio Choice; Investment Decisions
    • G32 - Financial Economics - - Corporate Finance and Governance - - - Financing Policy; Financial Risk and Risk Management; Capital and Ownership Structure; Value of Firms; Goodwill

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