Optimal investment for executive stockholders with exponential utility

The scope of this paper is to enhance the model for the own-company stockholder (Desmettre et al. in Math Methods Oper Res 72(3):347–378, <CitationRef CitationID="CR4">2010</CitationRef>), who can voluntarily performance-link his personal wealth to his management success by acquiring stocks in the own-company whose value he can directly influence via spending work effort. The executive is thereby characterized by a parameter of risk aversion and the two work effectiveness parameters inverse work productivity and disutility stress. We extend the model to a constant absolute risk aversion framework using an exponential utility/disutility setup. A closed-form solution is given for the optimal work effort an executive will apply and we derive the optimal investment strategies of the executive. Furthermore, we determine an up-front fair cash compensation applying an indifference utility rationale. Our study shows to a large extent that the results previously obtained are robust under the choice of the utility/disutility setup. Copyright Springer-Verlag 2012