Do Contracts for Executive Compensation Maximize Firm Value?

In a recent study, we examine whether executive compensation contracts are designed to maximize firm value. There is considerable debate regarding executive compensation in both the public arena and academia. On the one hand, proponents of the “value maximization” theories claim that executive compensation contracts are optimally designed to attract and provide incentives for executives in a competitive job market to maximize shareholder value. On the other hand, proponents of the “rent extraction” theories suggest that market forces fail in this setting, because executives are able to practically set their own compensation, therefore executive compensation contracts are set sub-optimally … Read more

Weak Corporate Culture Creates Risk of Inaccurate Financial Reporting

After almost every major financial-reporting scandal, news stories and congressional speeches inevitably follow, detailing how corporate culture encouraged and enabled fraud. For example, in September 2016, Wells Fargo CEO John Stumpf testified before the House Financial Services Committee regarding the bank’s phony accounts scandal. The bipartisan outrage was captured by Representative Mike Capuano of Massachusetts: “You… have run an enterprise that has a culture of corruption. You encourage subordinates to abuse existing customers by opening fake bank accounts. You charge those victims illegal fees, interest, and late charges, and then you send some to collection agencies because they didn’t pay

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