Financial Market Frictions and Learning from the Stock Price

2019 ◽  
Author(s):  
Dominik Rösch ◽  
Avanidhar Subrahmanyam ◽  
Mathijs A. Van Dijk
Keyword(s):  
Financial Market ◽  
Stock Price ◽  
Market Frictions ◽  
Financial Market Frictions

scholarly journals Contractual Managerial Incentives with Stock Price Feedback

2019 ◽  
Vol 109 (7) ◽  
pp. 2446-2468 ◽  
Author(s):  
Tse-Chun Lin ◽  
Qi Liu ◽  
Bo Sun
Keyword(s):  
Stock Prices ◽  
Stock Price ◽  
Pay For Performance ◽  
Investment Decisions ◽  
Managerial Compensation ◽  
Market Frictions ◽  
Firm Investment ◽  
Managerial Decisions ◽  
Microstructure Model ◽  
Financial Market Frictions

We study the effect of financial market frictions on managerial compensation. We embed a market microstructure model into an otherwise standard contracting framework, and analyze optimal pay-for-performance when managers use information they learn from the market in their investment decisions. In a less frictional market, the improved information content of stock prices helps guide managerial decisions and thereby necessitates lower-powered compensation. Exploiting a randomized experiment, we document evidence that pay-for-performance is lowered in response to reduced market frictions. Firm investment also becomes more sensitive to stock prices during the experiment, consistent with increased managerial learning from the market. (JEL D83, G12, G14, G32, G34, M12, M52)

scholarly journals Asset Bubbles, Unemployment, and Financial Market Frictions

2020 ◽  
Author(s):  
Ken-Ichi Hashimoto ◽  
Ryonghun Im ◽  
Takuma Kunieda ◽  
Akihisa Shibata
Keyword(s):  
Financial Market ◽  
Market Frictions ◽  
Asset Bubbles ◽  
Financial Market Frictions
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