Managerial Compensation and the Market Reaction to Bank Loans
University of Texas at Austin - Department of Finance
Centre for Monetary and Financial Studies (CEMFI); Centre for Economic Policy Research (CEPR); European Corporate Governance Institute (ECGI)
CEPR Discussion Paper No. 2643
This Paper considers why a manager would choose to submit himself to the discipline of bank monitoring. This issue is analysed within the context of a model where the manager enjoys private benefits, which can be restricted by the monitor, and is optimally compensated by shareholders. Within this setting, we find that managers will submit to monitoring when they receive favourable private information. This result is consistent with event study evidence that suggests that the market has a favourable view of financing choices that increase monitoring.
Number of Pages in PDF File: 43
Keywords: Banks, managerial compensation, monitoring, optimal contracts
JEL Classification: G32, G34working papers series
Date posted: January 29, 2001
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