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Implicit contracts, managerial incentives and financial structure

Dessi, Roberta (1997) Implicit contracts, managerial incentives and financial structure. Financial Markets Group Discussion Papers (279). Financial Markets Group, The London School of Economics and Political Science, London, UK.

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This paper examines how managers may be given incentives to exert effort, and to implement efficient implicit contracts with workers. Under certain assumptions, this can be achieved by tying managerial compensation to shareholder value. However, if reputation effects are weak, it is more efficient to adopt an incentive scheme in which the manager is punished by outside investor intervention when performance falls below a critical level, and otherwise retains control, receiving a fixed reward. The required form of outside intervention can be implemented through a financial structure combining "hard" debt with a relatively dispersed ownership structure.

Item Type: Monograph (Discussion Paper)
Official URL:
Additional Information: © 1997 The Author
Divisions: Financial Markets Group
Subjects: H Social Sciences > HC Economic History and Conditions
H Social Sciences > HG Finance
JEL classification: G - Financial Economics > G3 - Corporate Finance and Governance > G32 - Financing Policy; Financial Risk and Risk Management; Capital and Ownership Structure
G - Financial Economics > G3 - Corporate Finance and Governance > G33 - Bankruptcy; Liquidation
J - Labor and Demographic Economics > J4 - Particular Labor Markets > J41 - Contracts: Specific Human Capital, Matching Models, Efficiency Wage Models, and Internal Labor Markets
Date Deposited: 05 Jun 2023 12:48
Last Modified: 16 May 2024 12:30

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