Analysis for the optimal contract with stock grants

Author

Ma, Wei-min ; Lin, Wu-ji ; Yu, Zhi-fang

Author_Institution

Sch. of Econ. & Manage., Tongji Univ., Shanghai

Volume

3

fYear

2008

fDate

12-15 July 2008

Firstpage

1681

Lastpage

1686

Abstract

The research on the optimal design of securities grants is still in its infancy. In this paper, a simple dynamic model of the relationship between a firm and its chief executive officer is established. The optimal long-term compensation with limited commitment is analyzed under complete information. The main result is that, in the environment of symmetric information, managerpsilas continuation utility is equal to his reservation utility. If stock grants are not used as deferred compensation, the optimal contract collapses to a series of short term contracts. When stock grants are used, however, inclusion of stock grants in the compensation package could not be implemented to achieve higher firm value.

Keywords

contracts; organisational aspects; stock markets; chief executive officer; firm value; optimal contract analysis; optimal long-term compensation; stock grants; symmetric information; Conference management; Contracts; Cybernetics; Economic forecasting; Environmental economics; Information analysis; Machine learning; Security; Space technology; Technology management; Executive stock grants; Moral hazard; Optimal contract; Symmetric information;

fLanguage

English

Publisher

ieee

Conference_Titel

Machine Learning and Cybernetics, 2008 International Conference on

Conference_Location

Kunming

Print_ISBN

978-1-4244-2095-7

Electronic_ISBN

978-1-4244-2096-4

Type

conf

DOI

10.1109/ICMLC.2008.4620676

Filename

4620676