Abstract

http://ssrn.com/abstract=891298
 
 

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Analyst Monitoring and Managerial Incentives


Rajdeep Singh


University of Minnesota - Twin Cities - Carlson School of Management

Vijay Yerramilli


University of Houston, C. T. Bauer College of Business

July 15, 2012


Abstract:     
In this paper, we investigate whether an increase in analyst monitoring, which improves the informational efficiency of stock prices, necessarily translates into firms' managers taking more value-enhancing decisions ("real efficiency"). We show that when the manager's compensation is tied to stock prices, then an increase in analyst monitoring weakens managerial incentives by making the firm's stock price less sensitive to the firm's current performance. If the manager's compensation contract is observed by stock market participants, then an increase in analyst monitoring is always detrimental to real efficiency. However, if market participants do not observe the manager's compensation contract, then an increase in analyst monitoring improves real efficiency for growth firms and reduces real efficiency for value firms.

Number of Pages in PDF File: 32

Keywords: Real efficiency, informational efficiency, analysts, pay-performance sensitivity

JEL Classification: G30, G31

working papers series


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Date posted: March 16, 2006 ; Last revised: September 25, 2012

Suggested Citation

Singh, Rajdeep and Yerramilli, Vijay, Analyst Monitoring and Managerial Incentives (July 15, 2012). Available at SSRN: http://ssrn.com/abstract=891298 or http://dx.doi.org/10.2139/ssrn.891298

Contact Information

Rajdeep Singh (Contact Author)
University of Minnesota - Twin Cities - Carlson School of Management ( email )
19th Avenue South
Minneapolis, MN 55455
United States
612-624-1061 (Phone)
612-626-1335 (Fax)
HOME PAGE: http://umn.edu/~rajsingh
Vijay Yerramilli
University of Houston, C. T. Bauer College of Business ( email )
Houston, TX 77204
United States
713-743-2516 (Phone)
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