Competition for Talent and Cyclical Malpractice in Corporate Governance

44 Pages Posted: 25 Jun 2019 Last revised: 22 Dec 2022

Date Written: December 13, 2022

Abstract

We present a model that rationalizes the cyclical nature of executive compensation and malpractice. The model features a principal-agent setting where effort and misreporting incentives are at conflict and managerial talent is a scarce asset. In the optimal contract, investors exploit a combination of short-term bonuses and investment in monitoring, but competition for managerial talent exacerbates malpractice and increases incentive pay. Malpractice dampens the efficient reallocation of assets, which supports regulations that modulate executive pay and corporate governance. Embedded into a dynamic general equilibrium with household savings and endogenous rates of return, the model reproduces the build-up of malpractice during expansions and its reduction after declines in aggregate output.

Keywords: Executives, Governance, Compensation, Malpractice, Cycles

JEL Classification: G34, G35, E32

Suggested Citation

Remesal, Alvaro, Competition for Talent and Cyclical Malpractice in Corporate Governance (December 13, 2022). Available at SSRN: https://ssrn.com/abstract=3406658 or http://dx.doi.org/10.2139/ssrn.3406658

Alvaro Remesal (Contact Author)

CUNEF Universidad ( email )

Calle de los Pirineos 55
Madrid, 28040
Spain

Do you have a job opening that you would like to promote on SSRN?

Paper statistics

Downloads
49
Abstract Views
425
PlumX Metrics