Managerial Compensation and Stock Price Manipulation

Posted: 23 May 2019

See all articles by Josef Schroth

Josef Schroth

Government of Canada - Bank of Canada

Multiple version iconThere are 2 versions of this paper

Date Written: December 1, 2018

Abstract

This paper studies the role of optimal managerial compensation in reducing uncertainty about manager reporting objectives. It is shown that, paradoxically, firm owners allow managers with higher propensity to manipulate the short‐term stock price to push for higher powered and more short‐term‐focused equity incentives. Such managers also work harder, and manipulate more, but may not generate higher firm profits. The model is consistent with existing empirical findings about the relationship between manipulation and equity pay, suggesting that heterogeneity in manager manipulation propensities may be an important driver of heterogeneity in pay. Novel testable predictions are developed.

Keywords: managerial compensation contracts; stock price manipulation; private information; duration of equity incentives

JEL Classification: D82; D86; G30; M12; M40

Suggested Citation

Schroth, Josef, Managerial Compensation and Stock Price Manipulation (December 1, 2018). Journal of Accounting Research, Vol. 56, No. 5, 2018. Available at SSRN: https://ssrn.com/abstract=3378107

Josef Schroth (Contact Author)

Government of Canada - Bank of Canada ( email )

234 Wellington Street
Ontario, Ottawa K1A 0G9
Canada

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