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Insider Information and Performance Pay

Author

Listed:
  • George-Levi Gayle
  • Robert A. Miller

Abstract

This article provides evidence that managers have private information they exploit for financial gain at the expense of shareholders. It develops a model of optimal contracting to show that moral hazard, hidden actions taken by agents, can rationalize why a principal would optimally induce agents to benefit from their private information. Estimates from a structural model shows that moral hazard is an important economic factor. This leads to the conclusion that, in practice, shareholders and managers might optimally agree upon an arrangement where managers systematically exploit their private information about the firm. (JEL codes: J3, K2, G3 and C5). Copyright The Author 2009. Published by Oxford University Press on behalf of Ifo Institute for Economic Research, Munich. All rights reserved. For permissions, please email: journals.permissions@oxfordjournals.org, Oxford University Press.

Suggested Citation

  • George-Levi Gayle & Robert A. Miller, 2009. "Insider Information and Performance Pay," CESifo Economic Studies, CESifo Group, vol. 55(3-4), pages 515-541.
    • Handle: RePEc:oup:cesifo:v:55:y:2009:i:3-4:p:515-541
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    File URL: http://hdl.handle.net/10.1093/cesifo/ifp010
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    Citations

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    Cited by:

    1. George-Levi Gayle & Robert A. Miller, 2009. "Has Moral Hazard Become a More Important Factor in Managerial Compensation?," American Economic Review, American Economic Association, vol. 99(5), pages 1740-1769, December.
    2. George-Levi Gayle & Limor Golan & Robert A. Miller, 2012. "Gender Differences in Executive Compensation and Job Mobility," Journal of Labor Economics, University of Chicago Press, vol. 30(4), pages 829-872.
    3. George-Levi Gayle & Limor Golan & Robert A. Miller, "undated". "Promotion, Turover and Compensation in the Executive Market," GSIA Working Papers 2008-E32, Carnegie Mellon University, Tepper School of Business.
    4. Inci, A. Can, 2012. "Insider trading activity, tenure length, and managerial compensation," Global Finance Journal, Elsevier, vol. 23(3), pages 151-166.
    5. Brenner, Steffen, 2011. "On the irrelevance of insider trading for managerial compensation," European Economic Review, Elsevier, vol. 55(2), pages 293-303, February.
    6. George-Levi Gayle & Limor Golan & Robert Miller, "undated". "Are There Glass Ceilings for Female Executives?," GSIA Working Papers -1969975920, Carnegie Mellon University, Tepper School of Business.
    7. George-Levi Gayle & Limor Golan & Robert A. Miller, 2015. "Interlocked Executives and Insider Board Members: An Empirical Analysis," Working Papers 2015-40, Federal Reserve Bank of St. Louis.

    More about this item

    JEL classification:

    • J3 - Labor and Demographic Economics - - Wages, Compensation, and Labor Costs
    • K2 - Law and Economics - - Regulation and Business Law
    • G3 - Financial Economics - - Corporate Finance and Governance
    • C5 - Mathematical and Quantitative Methods - - Econometric Modeling

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