Corpus ID: 15568607

STOCK MARKET TRADING , PRICE FORMATION , AND OPTIMAL MANAGEMENT COMPENSATION : THEORY AND EVIDENCE

@inproceedings{Garvey1996STOCKMT,
  title={STOCK MARKET TRADING , PRICE FORMATION , AND OPTIMAL MANAGEMENT COMPENSATION : THEORY AND EVIDENCE},
  author={Gerald. Garvey and Michael S. McCorry and Peter L. Swan},
  year={1996}
}
How do corporate decision-makers make use of the information conveyed by their stock prices? This paper presents a simple model in which traders’ private information is partially impounded into a firm’s stock price, which is in turn used in an optimal incentive contract for its CEO. In a sample of large US corporations, we find evidence to support the model’s prediction of a positive relationship between a CEO’s observed pay-for-performance and the information content and volume of market order… Expand

Tables from this paper

Managerial Compensation, Market Liquidity, and the Overinvestment Problem
This paper investigates the relationship among a firm's managerial incentive scheme, the market liquidity of its shares, and its investment policy. It shows that the shareholders' concern about theExpand

References

SHOWING 1-10 OF 40 REFERENCES
Market Liquidity and Performance Monitoring
This paper studies the value of the stock market as a monitor of managerial performance. It shows that the stock price incorporates performance information that cannot be extracted from the firm'sExpand
Stock Price Movements around Acquisition Announcements and Management's Response
Whether management employs security price changes as information depends on its assessment of the accuracy of the information set held by the market participants. Managers may possess proprietaryExpand
Corporate Financing Decisions and Anonymous Trading
This study considers a model in which a corporate manager has private information and engages in i) anonymous trading on personal account in the secondary market, and ii) the corporate issuance ofExpand
Market microstructure and asset pricing: On the compensation for illiquidity in stock returns
Models of price formation in securities markets suggest that privately informed investors are a significant source of market illiquidity. Since illiquidity increases the round-trip trading cost of anExpand
Bid, ask and transaction prices in a specialist market with heterogeneously informed traders
The presence of traders with superior information leads to a positive bid-ask spread even when the specialist is risk-neutral and makes zero expected profits. The resulting transaction prices conveyExpand
Do Corporations Award CEO Stock Options Effectively
This paper analyzes stock option wards to CEOs of 792 U.S. public corporations between 1984 and 1991. Using a Black-Scholes approach, I test whether stock options performance incentives haveExpand
Investment analysis and price formation in securities markets
This paper investigates empirically the relation between the number of analysts following a security and the cost of transacting in the security, using intraday data for the year 1988. Using singleExpand
Price Continuity Rules and Insider Trading
Restrictions on transaction price changes are a feature of many security markets. This paper analyzes the impact of such price continuity rules on price dynamics and examines possible rationales forExpand
Noise Trader Risk in Financial Markets
We present a simple overlapping generations model of an asset market in which irrational noise traders with erroneous stochastic beliefs both affect prices and earn higher expected returns. TheExpand
Performance Pay and Top Management Incentives
Our estimates of the pay-performance relation (including pay, options, stockholdings, and dismissal) for chief executive officers indicate that CEO wealth changes $3.25 for every $1,000 change inExpand
...
1
2
3
4
...