The effects of imperfect auditing on managerial compensation

Research output: Contribution to journalArticlepeer-review

5 Citations (Scopus)

Abstract

We study the optimal shareholder–manager contract having the property to induce the manager to exert high effort and truthfully reveal firm performance. This contract design problem is solved under the assumption of imperfect auditing, either because of mistakes or because of collusion between managers and auditors. The imperfection of the audit technology is costless up to a threshold, beyond which it causes a distortion in the incentive compatible contract or even prevents its existence. This result may help explain the observed decline in the use of stock options, tracing it back to an unfocused activity or poor performance of auditors.
Original languageEnglish
Pages (from-to)542-548
Number of pages7
JournalINTERNATIONAL REVIEW OF ECONOMICS & FINANCE
Volume20
DOIs
Publication statusPublished - 2011

Keywords

  • corporate governance

Fingerprint

Dive into the research topics of 'The effects of imperfect auditing on managerial compensation'. Together they form a unique fingerprint.

Cite this