IDEAS home Printed from https://ideas.repec.org/a/oup/rfinst/v31y2018i9p3409-3451..html
   My bibliography  Save this article

Managerial Short-Termism, Turnover Policy, and the Dynamics of Incentives

Author

Listed:
  • Felipe Varas

Abstract

I study managerial short-termism in a dynamic model of project development with hidden effort and imperfect observability of quality. The manager can complete the project faster by reducing quality. To preempt this behavior, the prin cipal makes payments contingent on long-term outcomes. I analyze the dynamics of the optimal contract and its implications for the level of managerial turnover. I show that optimal contracts might be stationary and entail no termination. In general, I show that the principal reduces the manager’s temptation to behave myopically by reducing the likelihood of termination and deferring compensation. The model predicts a negative relation between the rate of managerial turnover and the use of deferred compensation that is consistent with evidence of managerial compensation contracts. Received May 23, 2016; editorial decision May 27, 2017 by Editor Francesca Cornelli.

Suggested Citation

  • Felipe Varas, 2018. "Managerial Short-Termism, Turnover Policy, and the Dynamics of Incentives," The Review of Financial Studies, Society for Financial Studies, vol. 31(9), pages 3409-3451.
    • Handle: RePEc:oup:rfinst:v:31:y:2018:i:9:p:3409-3451.
    as

    Download full text from publisher

    File URL: http://hdl.handle.net/10.1093/rfs/hhx088
    Download Restriction: Access to full text is restricted to subscribers.
    ---><---

    As the access to this document is restricted, you may want to search for a different version of it.

    Citations

    Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
    as


    Cited by:

    1. Boleslavsky, Raphael & Taylor, Curtis R., 2024. "Make it 'til you fake it," Journal of Economic Theory, Elsevier, vol. 217(C).
    2. Tiziano De Angelis & Peter Tankov & Olivier David Zerbib, 2022. "Climate Impact Investing," Carlo Alberto Notebooks 676 JEL Classification: G, Collegio Carlo Alberto.
    3. Hoffmann, Florian & Pfeil, Sebastian, 2021. "Dynamic multitasking and managerial investment incentives," Journal of Financial Economics, Elsevier, vol. 142(2), pages 954-974.
    4. Tak-Yuen Wong, 2019. "Dynamic Agency and Endogenous Risk-Taking," Management Science, INFORMS, vol. 65(9), pages 4032-4048, September.
    5. Deb, Rahul & Mitchell, Matthew & Pai, Mallesh M., 2022. "(Bad) reputation in relational contracting," Theoretical Economics, Econometric Society, vol. 17(2), May.

    More about this item

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:oup:rfinst:v:31:y:2018:i:9:p:3409-3451.. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    We have no bibliographic references for this item. You can help adding them by using this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Oxford University Press (email available below). General contact details of provider: https://edirc.repec.org/data/sfsssea.html .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.