Finance and Financial Management Commons^™

Two Essays On Managerial Incentives, Hui Liang

Doctoral Dissertations

Jensen and Meckling (1976) and Jensen (1986) argue that the separation of ownership and control may generate agency problems between managers and shareholders. The equity-based compensation, by tying managerial wealth to firm long-run stock performance, can incentivize managers to be more receptive to undertaking value-increasing financial policies and to improving firm performance therefore can be used as an effective tool to achieve consonance between managers actions and shareholders interest. Over the last two decades, the increased prevalence of equity-based compensation in the form of stock and options, is partially due to an increased acceptance of the alignment effect of equity-based …