Equilibrium CEO Contract with Belief Heterogeneity

Résumé

Consider a rm owned by shareholders with heterogeneous beliefs and run by a manager who chooses random production plans. Shareholders do not observe the chosen plan but only its realization. The nancial market consists of assets contingent on production realizations. A contract for the manager species her compensation as a function of the rms production and possibly some restrictions to trade in the nancial market. Shareholders are unrestricted. We dene a concept of equilibrium between the manager and shareholders such that the equilibrium production plan is unanimously preferred by the manager and the shareholders, markets clear and the manager has no incentive to cheat. We rst analyze the properties of such equilibria and in particular show that the contract should restrict the manager from trading. We next provide a framework where such equilibria exist. We lastly study the properties of equilibrium compensations when shareholders have beliefs that can be ranked in terms of optimism towards the equilibrium plan. Specic attention is given to their departure from linear compensations.

Mots-clés

heterogeneous beliefs; asymmetric information; manager-shareholders equi-; librium.;

Codes JEL

G32: Financing Policy • Financial Risk and Risk Management • Capital and Ownership Structure • Value of Firms • Goodwill
G34: Mergers • Acquisitions • Restructuring • Corporate Governance
D24: Production • Cost • Capital • Capital, Total Factor, and Multifactor Productivity • Capacity
D51: Exchange and Production Economies
D70: General