Pay for Short-Term Performance: Executive Compensation in Speculative Markets

Patrick Bolton, Jose Scheinkman, Wei Xiong

NBER Working Paper No. 12107
Issued in March 2006
NBER Program(s):   AP   CF

We argue that the root cause behind the recent corporate scandals associated with CEO pay is the technology bubble of the latter half of the 1990s. Far from rejecting the optimal incentive contracting theory of executive compensation, the recent evidence on executive pay can be reconciled with classical agency theory once one expands the framework to allow for speculative stock markets.

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Published: Bolton, Patrick, Jos Scheinkman and Wei Xiong. "Executive Compensation And Short-Termist Behaviour In Speculative Markets," Review of Economic Studies, 2006, v73(3,Jul), 577-610.

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