We introduce two dimensions of uncertainty, about the upside and the downside of an asset, in a model of asset valuation under asymmetric information. This justifies capital structures with equity and risky debt for information revelation purposes. However, a capital structure with only one...

We develop a stylized model of efficient contracting in which firms compete for CEOs. The optimal contracts are designed to retain and insure CEOs. The retention motive explains pay-for-luck in executive compensation, while the insurance feature explains asymmetric pay-for-luck. We show that the...

This paper analyzes the effects of two regulatory mechanisms, namely a regulation of the structure of bank CEOs incentive pay and sanctions for the CEOs of failed banks, on bank risk shifting. We extend a standard model of CEO compensation by incorporating leverage and an investment decision. To...

Puzzling associations between low levels of ownership concentration and CEO pay practices such as pay-for-luck, a low pay-performance sensitivity, a more asymmetric pay-performance relation, and high salaries, have been documented. They have been interpreted as evidence that CEO pay is not set...

We confront criticisms against banks’ recent behavior to traditional economic theory. We argue that banks are intrinsically different from other businesses, so that the usual corporate governance arrangements may not be appropriate in the financial sector. We propose two measures to take into...

We present a model of efficient contracting with endogenous matching and limited monitoring in which firms compete for CEOs. The model explains the association between limited monitoring and CEO pay practices such as pay-for-luck, high salaries, a low pay-performance sensitivity, and a more...