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Executive compensation contracts: a model of disclosure choice

Frantz, Pascal and Instefjord, Norvald and Walker, Martin (2007) Executive compensation contracts: a model of disclosure choice. Social Science Research Network.

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Abstract

Disclosure of executive compensation schemes has been made mandatory over the past decade in many countries including the UK and the US. Firms however tend not to fully disclose the functional form of their executive compensation schemes. This paper provides a rationale for the lack of voluntary disclosure by firms. It introduces a voluntary disclosure model in which executive compensation solves a moral hazard problem, the resolution of which depends on proprietary information. It provides conditions under which equilibria involving either disclosure or nondisclosure of the executive compensation scheme can obtain and shows that shareholders are better off precommitting not to disclose the executive compensation scheme whenever possible. It establishes that executive directors are better off too in the absence of disclosure of executive compensation schemes. It furthermore shows that mandating the disclosure of executive compensation may not increase the richness of investors' information set.

Item Type: Monograph (Working Paper)
Official URL: http://papers.ssrn.com/
Additional Information: © 2007 The Authors
Subjects: H Social Sciences > HB Economic Theory
H Social Sciences > HF Commerce > HF5601 Accounting
Sets: Departments > Accounting
Collections > Economists Online
Date Deposited: 10 Aug 2012 10:34
Last Modified: 10 Aug 2012 10:34
URI: http://eprints.lse.ac.uk/id/eprint/45323

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