Abstract

This paper presents a model in which the CEO generates productive output while the CFO oversees a reporting system that provides information useful for monitoring, decision-making, and contracting, but is also subject to costly manipulation. Because the reporting system serves multiple roles, the CEO's compensation incentives and the quality of the reporting system can be substitutes or complements. When they are substitutes, the CEO's incentive compensation is positively related to performance metric risk, firm value can be increasing in the CFO's risk aversion, and high biasing costs can reduce the positive association between firm value and CFO risk aversion. Whether they are primarily substitutes or complements can depend on the speed of decreasing returns to scale in the production function. The potential value of CEO-CFO collusion in this setting is explored in an extension.

Full Text
Paper version not known

Talk to us

Join us for a 30 min session where you can share your feedback and ask us any queries you have

Schedule a call

Disclaimer: All third-party content on this website/platform is and will remain the property of their respective owners and is provided on "as is" basis without any warranties, express or implied. Use of third-party content does not indicate any affiliation, sponsorship with or endorsement by them. Any references to third-party content is to identify the corresponding services and shall be considered fair use under The CopyrightLaw.