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Communication Dans Un Congrès Année : 2022

Optimal Dynamic Contract with a Shock on the Benefit of Cash Flow Diversion

Résumé

This paper explores a continuous-time principal-agent model where the agent can divert cash flow.The novelty is that the benefit of cash-flow diversion is subject to an exogenous and persistentshock that can be interpreted as a new regulation on the executive pay that limits the usage offringe benefits or perquisites out of the owner?s sight. First, our results suggest that the bonusesare compressed following the shock: the expected future bonuses of a good performer increasewhile those of a poor performer decrease. Second, our analysis also predicts theregulation-induced retention of a poor performer, defined as maintaining an agent in place whilehis poor performance would have induced his dismissal in the absence of the shock on the benefitof cash-flow diversion.
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Dates et versions

hal-04398205 , version 1 (16-01-2024)

Identifiants

  • HAL Id : hal-04398205 , version 1

Citer

Vincent Tena. Optimal Dynamic Contract with a Shock on the Benefit of Cash Flow Diversion. 2022 World Finance Conference, Jul 2022, Turin, Italy. ⟨hal-04398205⟩
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