Abstract

http://ssrn.com/abstract=2081685
 
 

References (28)



 
 

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Agency, Firm Growth and Managerial Turnover


Ronald W. Anderson


London School of Economics & Political Science (LSE) - Department of Accounting and Finance; Centre for Economic Policy Research (CEPR)

Maria Cecilia Bustamante


London School of Economics & Political Science (LSE)

Stephane Guibaud


SciencesPo - Department of Economics

September 10, 2012


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.

Number of Pages in PDF File: 52

Keywords: dynamic contracting, managerial turnover, growth, moral hazard

JEL Classification: G30, D82, D86, D92

working papers series


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Date posted: June 11, 2012 ; Last revised: September 11, 2012

Suggested Citation

Anderson, Ronald W. and Bustamante, Maria Cecilia and Guibaud, Stephane, Agency, Firm Growth and Managerial Turnover (September 10, 2012). Available at SSRN: http://ssrn.com/abstract=2081685 or http://dx.doi.org/10.2139/ssrn.2081685

Contact Information

Ronald W. Anderson (Contact Author)
London School of Economics & Political Science (LSE) - Department of Accounting and Finance ( email )
Houghton Street
London WC2A 2AE
United Kingdom
+44 20 7955 6204 (Phone)
+44 20 7955 7420 (Fax)
HOME PAGE: http://personal.lse.ac.uk/ANDERSOR/
Centre for Economic Policy Research (CEPR)
77 Bastwick Street
London, EC1V 3PZ
United Kingdom
Maria Cecilia Bustamante
London School of Economics & Political Science (LSE) ( email )
Room A370
Houghton Street
London, WC2A 2AE
United Kingdom
Stephane Guibaud
SciencesPo - Department of Economics ( email )
28 Rue des Saints-Pères
Paris, 75007
France
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