Optimal Compensation with Earnings Manipulation : Managerial Ownership and Retention

  title={Optimal Compensation with Earnings Manipulation : Managerial Ownership and Retention},
  author={Thomas A. Gresik},
The optimal managerial compensation contract is characterized in an environment in which the manager influences the distribution of earnings through an unobservable effort decision. Actual earnings, when realized, are private information observed only by the manager, who may engage in the costly manipulation of earnings reports. Retention is modeled explicitly by requiring that the optimal contract satisfy interim individual rationality, so that the manager earns non-negative profit for any… CONTINUE READING


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