Bianchi, Milo, Dana, Rose-Anne and Jouini, Elyes (2021) Equilibrium CEO Contract with Belief Heterogeneity. TSE Working Paper, n. 21-1253, Toulouse

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Abstract

Consider a rm owned by shareholders with heterogeneous beliefs and run by a manager who chooses random production plans. Shareholders do not observe the chosen plan but only its realization. The nancial market consists of assets contingent on production realizations. A contract for the manager species her compensation as a function of the rms production and possibly some restrictions to trade in the nancial market. Shareholders are unrestricted. We dene a concept of equilibrium between the manager and shareholders such that the equilibrium production plan is unanimously preferred by the manager and the shareholders, markets clear and the manager has no incentive to cheat. We rst analyze the properties of such equilibria and in particular show that the contract should restrict the manager from trading. We next provide a framework where such equilibria exist. We lastly study the properties of equilibrium compensations when shareholders have beliefs that can be ranked in terms of optimism towards the equilibrium plan. Specic attention is given to their departure from linear compensations.

Item Type: Monograph (Working Paper)
Language: English
Date: 16 April 2021
Place of Publication: Toulouse
Uncontrolled Keywords: heterogeneous beliefs, asymmetric information, manager-shareholders equi-, librium.
JEL Classification: D24 - Production; Cost; Capital and Total Factor Productivity; Capacity
D51 - Exchange and Production Economies
D70 - General
G32 - Financing Policy; Financial Risk and Risk Management; Capital and Ownership Structure
G34 - Mergers; Acquisitions; Restructuring; Corporate Governance
Subjects: B- ECONOMIE ET FINANCE
Divisions: TSE-R (Toulouse)
Institution: Université Toulouse 1 Capitole
Site: UT1
Date Deposited: 21 Sep 2021 07:14
Last Modified: 10 Jun 2022 11:38
OAI Identifier: oai:tse-fr.eu:125984
URI: https://publications.ut-capitole.fr/id/eprint/43830
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