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Optimal managerial remuneration and firm-level diversification

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  • Nier, Erlend

Abstract

In a model that exhibits both moral hazard and hidden information on the part of the manager different remuneration schemes are discussed and the optimal contract between financial investor and manager is derived. Assuming the manager is risk-neutral and protected by limited liability, a benefit from diversification is shown to exist even though the projects which the manager develops are technologically unrelated and choices made on one project do not constrain the choices on any other project.

Suggested Citation

  • Nier, Erlend, 1997. "Optimal managerial remuneration and firm-level diversification," LSE Research Online Documents on Economics 119172, London School of Economics and Political Science, LSE Library.
    • Handle: RePEc:ehl:lserod:119172
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    File URL: http://eprints.lse.ac.uk/119172/
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    More about this item

    JEL classification:

    • D82 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Asymmetric and Private Information; Mechanism Design
    • G31 - Financial Economics - - Corporate Finance and Governance - - - Capital Budgeting; Fixed Investment and Inventory Studies
    • G34 - Financial Economics - - Corporate Finance and Governance - - - Mergers; Acquisitions; Restructuring; Corporate Governance

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