The effects of imperfect auditing on managerial compensation

Risultato della ricerca: Contributo in rivistaArticolo in rivistapeer review

5 Citazioni (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.
Lingua originaleEnglish
pagine (da-a)542-548
Numero di pagine7
RivistaINTERNATIONAL REVIEW OF ECONOMICS & FINANCE
Volume20
DOI
Stato di pubblicazionePubblicato - 2011

Keywords

  • corporate governance

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