|
on Contract Theory and Applications |
| By: | Hoffmann, Florian; Inderst, Roman; Opp, Marcus |
| Abstract: | Our paper evaluates recent regulatory proposals mandating the deferral of bonus payments and claw-back clauses in the financial sector. We study a broadly applicable principal agent setting, in which the agent exerts effort for an immediately observable task (acquisition) and a task for which information is only gradually available over time (diligence). Optimal compensation contracts trade off the cost and benefit of delay resulting from agent impatience and the informational gain. Mandatory deferral may increase or decrease equilibrium diligence depending on the importance of the acquisition task. We provide concrete conditions on economic primitives that make mandatory deferral socially (un)desirable. |
| Keywords: | financial regulation,compensation design,principal-agent models |
| JEL: | G28 G21 D86 |
| Date: | 2015 |
| URL: | http://d.repec.org/n?u=RePEc:zbw:imfswp:91&r=cta |
| By: | Wang, Li; Menkhoff, Lukas; Schröder, Michael; Xu, Xian |
| Abstract: | This paper shows that politicians' pressure to climb the career ladder increases bank risk exposure in their region. Chinese local politicians are set growth targets in their region that are relative to each other. Growth is stimulated by debt-financed programs which are mainly financed via bank loans. The stronger the performance incentive the riskier the respective local bank exposure becomes. This effect holds primarily for local banks which are under a certain degree of control of local politicians and it has increased with the release of recent stimulus packages requiring local co-financing. |
| Keywords: | Bank Lending,Bank Risk Exposure,Local Politicians,Promotion Incentives |
| JEL: | G21 G23 H74 |
| Date: | 2015 |
| URL: | http://d.repec.org/n?u=RePEc:zbw:fsfmwp:216&r=cta |
| By: | Marian Moszoro; Pablo T. Spiller; Sebastian Stolorz |
| Abstract: | We apply algorithmic data reading and textual analysis to compare the features of contracts in regulated industries subject to public scrutiny (which we call "public contracts") with relational private contracts. We show that public contracts are lengthier and have more rule-based rigid clauses; in addition, their renegotiation is formalized in amendments. We also find that contract length and the frequency of rigidity clauses increases in political contestability and closer to upcoming elections. We maintain that the higher rigidity of public contracts is a political risk adaptation strategy carried out by public agents attempting to lower third-party opportunistic challenges. |
| JEL: | D23 D73 D78 H57 K23 |
| Date: | 2015–05 |
| URL: | http://d.repec.org/n?u=RePEc:nbr:nberwo:21186&r=cta |