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| Tekijä: | Bisin, A. Gottardi, P. Rampini, A.A. |
| Otsikko: | Managerial hedging and portfolio monitoring |
| Lehti: | Journal of the European Economic Association
2008 : MAR, VOL. 6:1, p. 158-209 |
| Asiasana: | portfolio management risk hedging managers shareholders |
| Kieli: | eng |
| Tiivistelmä: | Incentive compensation generates correlation between the portfolio of managers and the cash flow of the firms they manage. This correlation exposes managers to risk and gives them an incentive to hedge against the poor performance of their firms. This paper examines the agency problem between shareholders and a manager when the manager can hedge his compensation using financial markets and shareholders can monitor the manager's portfolio in order to keep him from hedging. Monitoring is costly. The results reveal that the optimal incentive compensation and governance provision have three different properties. The model suggests that the optimal level of portfolio monitoring is higher for managers of firms whose performance can be hedged more easily. |
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