Stock-option programs (SOPs) became the dominant compensation instrument for top management in the nineties. Usually, they are not dividend-protected, i.e., any dividend payout decreases the value of a manager's options. Empirical evidence shows that this results in a significant decrease in the...

In an experiment, we model two stylized facts about capital budgeting practice, budgetary slack creation and delegation of decision-making authority. In our setting, under centralization, headquarters announces a budget, the division manager gives a cost report, and headquarters decides on the...

Executive Stock Option Programs (SOPs) have become the dominantcompensation instrument for top-management in recent years. Theincentive effects of an SOP both with respect to corporateinvestment and financing decisions critically depend on the design of the SOP. A specific problem in designing...

Despite the importance of target setting for firms, prior research offers mixed evidence regarding performance consequences of target difficulty levels. While experimental research suggests that setting difficult targets can increase performance, empirical evidence in field studies is mixed and...

This experimental study investigates the use of audits as a control instrument in capital budgeting processes and factors that contribute to audit efficiency (or inefficiency) in a repeated relationship. We disentangle reputational aspects of superiors and subordinates from an increased social...