Business, Management and Accounting
2 years ago

Executive compensation boosts share prices and aligns interests with shareholders.

Journal of Financial Economics
Editorial data
Michael C. Jensen, John Long, G.William Schwert, Clifford W. Smith, René M. Stulz

Paper Summary

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Executive compensation is linked to share price performance. Poor firm performance leads to more executive turnover. Managers manipulate accounting to boost their bonuses. New compensation plans and golden parachutes boost share prices. Founder's death boosts share prices. Managers avoid mergers that lower stock prices if they own more stock. Overall, executive compensation aligns managers' and shareholders' interests.