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But Is It Myopia? Risk Aversion and the Efficiency of Stock‐Based Managerial Incentives

But Is It Myopia? Risk Aversion and the Efficiency of Stock‐Based Managerial Incentives This paper points out that stock incentives do not lead to myopia unless they result in more emphasis on the short‐term than would occur under an optimal contract. It shows that myopia findings relative to the standard used throughout the literature (first‐best efficiency) are often reversed when evaluated relative to the relevant standard of optimal contracting. Results reported by the previous literature to be myopia often in fact have excessive emphasis on the long‐term. The paper solves in closed‐form for the region in parameter space which gives rise to these reversals and shows that it can be arbitrarily large. http://www.deepdyve.com/assets/images/DeepDyve-Logo-lg.png Journal of Economics & Management Strategy Wiley

But Is It Myopia? Risk Aversion and the Efficiency of Stock‐Based Managerial Incentives

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References (33)

Publisher
Wiley
Copyright
© 2008, The Author(s) Journal Compilation © 2008 Blackwell Publishing
ISSN
1058-6407
eISSN
1530-9134
DOI
10.1111/j.1530-9134.2008.00186.x
Publisher site
See Article on Publisher Site

Abstract

This paper points out that stock incentives do not lead to myopia unless they result in more emphasis on the short‐term than would occur under an optimal contract. It shows that myopia findings relative to the standard used throughout the literature (first‐best efficiency) are often reversed when evaluated relative to the relevant standard of optimal contracting. Results reported by the previous literature to be myopia often in fact have excessive emphasis on the long‐term. The paper solves in closed‐form for the region in parameter space which gives rise to these reversals and shows that it can be arbitrarily large.

Journal

Journal of Economics & Management Strategy – Wiley

Published: Jun 1, 2008

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