TY  - JOUR
AU  - Bolton,Patrick
AU  - Scheinkman,Jose
AU  - Xiong,Wei
TI  - Executive Compensation and Short-termist Behavior in Speculative Markets
JF  - National Bureau of Economic Research Working Paper Series
VL  - No. 9722
PY  - 2003
Y2  - May 2003
UR  - http://www.nber.org/papers/w9722
L1  - http://www.nber.org/papers/w9722.pdf
N1  - Author contact info:
Patrick Bolton
Columbia Business School
804 Uris Hall
New York, NY 10027
Tel: 212/854-9245
Fax: 212/854-8059
E-Mail: pb2208@columbia.edu

Jose A. Scheinkman
Department of Economics
Princeton University
Princeton, NJ  08544-1021
Tel: 609/258-4020
Fax: 609/258-0771
E-Mail: joses@princeton.edu

Wei Xiong
Princeton University
Department of Economics
Bendheim Center for Finance
Princeton, NJ  08450
Tel: 609/258-0282
Fax: 609/258-0771
E-Mail: wxiong@princeton.edu
AB  - We present a multiperiod agency model of stock based executive compensation in a speculative stock market, where investors are overconfident and stock prices may deviate from underlying fundamentals and include a speculative option component. This component arises from the option to sell the stock in the future to potentially overoptimistic investors. We show that optimal compensation contracts may emphasize short-term stock performance, at the expense of long run fundamental value, as an incentive to induce managers to pursue actions which increase the speculative component in the stock price. Our model provides a different perspective for the recent corporate crisis than the increasingly popular `rent extraction view' of executive compensation.
ER  -