Citation

Discussion Paper Details

Please find the details for DP9147 in an easy to copy and paste format below:

Full Details   |   Bibliographic Reference

Full Details

Title: Agency, Firm Growth and Managerial Turnover

Author(s): Ronald W. Anderson, Maria Cecilia Bustamante and Stéphane Guibaud

Publication Date: September 2012

Keyword(s): agency, compensation policy, firm growth, managerial turnover, optimal contracting and severance pay

Programme Area(s): Financial Economics

Abstract: We study managerial incentive provision under moral hazard in a firm subject to stochastic growth opportunities. In our model, managers are dismissed after poor performance, but also when an alternative manager is more capable of growing the firm. The optimal contract may involve managerial entrenchment, such that growth opportunities are foregone after good performance. Firms with better growth prospects have higher managerial turnover and more front-loaded compensation. Firms may pay severance to incentivize their managers to report truthfully the arrival of growth opportunities. By ignoring the externality of the dismissal policy onto future managers, the optimal contract implies excessive retention.

For full details and related downloads, please visit: https://cepr.org/active/publications/discussion_papers/dp.php?dpno=9147

Bibliographic Reference

Anderson, R, Bustamante, M and Guibaud, S. 2012. 'Agency, Firm Growth and Managerial Turnover'. London, Centre for Economic Policy Research. https://cepr.org/active/publications/discussion_papers/dp.php?dpno=9147