Empire-builders and shirkers: investment, firm performance, and managerial incentives
Do firms systematically over- or underinvest as a result of agency problems? We develop a contracting model between shareholders and managers in which managers have private benefits or private costs of investment. Managers overinvest when they have private benefits and underinvest when they have pri...
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| Main Authors: | , |
|---|---|
| Format: | Book |
| Language: | English |
| Published: |
Cambridge, Mass.
1999
|
| Series: | National Bureau of Economic Research <Cambridge, Mass.>: NBER working paper series
7335 |
| Subjects: | |
| Online Access: | Volltext |
| Summary: | Do firms systematically over- or underinvest as a result of agency problems? We develop a contracting model between shareholders and managers in which managers have private benefits or private costs of investment. Managers overinvest when they have private benefits and underinvest when they have private costs. Optimal incentive contracts mitigate the over- or underinvestment problem. We derive comparative static predictions for the equilibrium relationships between incentives from compensation, investment, and firm performance for both cases. The relationship between firm performance and managerial incentives, in isolation, is insufficient to identify whether managers have private benefits or private costs of investment. In order to identify whether managers have private benefits or costs, we estimate the joint relationships between incentives and firm performance and between incentives and investment. Our empirical results show that both firm performance and investment are increasing in managerial incentives. These results are consistent with managers having private costs of investment. We find no support for overinvestment based on private benefits. |
| Physical Description: | 38 S. graph. Darst. |
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| id | DE-604.BV013162776 |
| illustrated | Illustrated |
| indexdate | 2024-07-09T18:40:06Z |
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| language | English |
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| physical | 38 S. graph. Darst. |
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| series | National Bureau of Economic Research <Cambridge, Mass.>: NBER working paper series |
| series2 | National Bureau of Economic Research <Cambridge, Mass.>: NBER working paper series |
| spelling | Aggarwal, Raj Verfasser (DE-588)124543502 aut Empire-builders and shirkers investment, firm performance, and managerial incentives Rajesh K. Aggarwal ; Andrew A. Samwick Cambridge, Mass. 1999 38 S. graph. Darst. txt rdacontent n rdamedia nc rdacarrier National Bureau of Economic Research <Cambridge, Mass.>: NBER working paper series 7335 Do firms systematically over- or underinvest as a result of agency problems? We develop a contracting model between shareholders and managers in which managers have private benefits or private costs of investment. Managers overinvest when they have private benefits and underinvest when they have private costs. Optimal incentive contracts mitigate the over- or underinvestment problem. We derive comparative static predictions for the equilibrium relationships between incentives from compensation, investment, and firm performance for both cases. The relationship between firm performance and managerial incentives, in isolation, is insufficient to identify whether managers have private benefits or private costs of investment. In order to identify whether managers have private benefits or costs, we estimate the joint relationships between incentives and firm performance and between incentives and investment. Our empirical results show that both firm performance and investment are increasing in managerial incentives. These results are consistent with managers having private costs of investment. We find no support for overinvestment based on private benefits. Ökonometrisches Modell Capital investments United States Decision making Econometric models Executives Salaries, etc. United States Econometric models Incentives in industry United States Econometric models USA Samwick, Andrew Verfasser (DE-588)124078796 aut Erscheint auch als Online-Ausgabe National Bureau of Economic Research <Cambridge, Mass.>: NBER working paper series 7335 (DE-604)BV002801238 7335 http://papers.nber.org/papers/w7335.pdf kostenfrei Volltext |
| spellingShingle | Aggarwal, Raj Samwick, Andrew Empire-builders and shirkers investment, firm performance, and managerial incentives National Bureau of Economic Research <Cambridge, Mass.>: NBER working paper series Ökonometrisches Modell Capital investments United States Decision making Econometric models Executives Salaries, etc. United States Econometric models Incentives in industry United States Econometric models |
| title | Empire-builders and shirkers investment, firm performance, and managerial incentives |
| title_auth | Empire-builders and shirkers investment, firm performance, and managerial incentives |
| title_exact_search | Empire-builders and shirkers investment, firm performance, and managerial incentives |
| title_full | Empire-builders and shirkers investment, firm performance, and managerial incentives Rajesh K. Aggarwal ; Andrew A. Samwick |
| title_fullStr | Empire-builders and shirkers investment, firm performance, and managerial incentives Rajesh K. Aggarwal ; Andrew A. Samwick |
| title_full_unstemmed | Empire-builders and shirkers investment, firm performance, and managerial incentives Rajesh K. Aggarwal ; Andrew A. Samwick |
| title_short | Empire-builders and shirkers |
| title_sort | empire builders and shirkers investment firm performance and managerial incentives |
| title_sub | investment, firm performance, and managerial incentives |
| topic | Ökonometrisches Modell Capital investments United States Decision making Econometric models Executives Salaries, etc. United States Econometric models Incentives in industry United States Econometric models |
| topic_facet | Ökonometrisches Modell Capital investments United States Decision making Econometric models Executives Salaries, etc. United States Econometric models Incentives in industry United States Econometric models USA |
| url | http://papers.nber.org/papers/w7335.pdf |
| volume_link | (DE-604)BV002801238 |
| work_keys_str_mv | AT aggarwalraj empirebuildersandshirkersinvestmentfirmperformanceandmanagerialincentives AT samwickandrew empirebuildersandshirkersinvestmentfirmperformanceandmanagerialincentives |