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Corporate Governance and Strategic Management > Session 9: Executive compensation > Flashcards

Session 9: Executive compensation Flashcards

1
Q

Innovations

A

Uncertainty is particularly high for innovations

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2
Q

Therefore, for innovations:

A

−Risk aversion of the agent has a stronger effect
−Monitoring of effort levels is more difficult
−Creation of complete contracts is particularly difficult

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3
Q

Principal agent (PA) theory

A
  • Based on the contract, the principal orders the agent to carry out a task
  • Agent has discretion for making own decisions
  • ex ante: adverse selection because of hidden information
    ex post: moral hazard because of hidden action
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Corporate Governance and Strategic Management (12 decks)

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