Optimal Contracting with Unobservable Managerial Hedging
| Autor: | Yu Huang, Hao Xing, Nengjiu Ju |
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| Rok vydání: | 2017 |
| Předmět: |
History
Polymers and Plastics Capital structure Market portfolio Limited liability Moral hazard Deferred compensation Industrial and Manufacturing Engineering Microeconomics Market risk Business Business and International Management Hedge (finance) health care economics and organizations Market conditions |
| Zdroj: | SSRN Electronic Journal. |
| ISSN: | 1556-5068 |
| DOI: | 10.2139/ssrn.3079655 |
| Popis: | We develop a dynamic model where a CARA principal contracts with a CARA agent to operate a firm. The agent, protected by limited liability, trades privately a market portfolio to hedge market risk in his compensation. When the liquidation cost of the firm is proportional to its size, principal manages the termination risk by loading the contract with a positive market component which alleviates termination risk in normal market conditions, but makes termination more likely after negative shocks. The optimal contract displays a dynamic mixture of absolute and relative performance evaluations, and is implemented through capital structure featuring a dynamic deferred compensation account. |
| Databáze: | OpenAIRE |
| Externí odkaz: |
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