[工程科技]CapitalBudgetingCompensationwithAsymmetric.pdf

Capital Budgeting and Compensation with Asymmetric Information and Moral Hazard¤ Antonio E. Bernardo Anderson School of Management at UCLAy Hongbin Cai Department of Economics, UCLA Jiang Luo Anderson School of Management at UCLA June 15, 2000 Abstract We consider optimal capital allocation and managerial compensation mechanisms for decentralized ¯rms when division managers have an incentive to misrepresent project qual- ity and to minimize privately costly but value-enhancing e®ort. We ¯nd that in the op- timal mechanism ¯rms always underinvest in capital relative to a naive application of the net present value (NPV) rule. This is consistent with evidence that ¯rms require much higher hurdle rates than predicted by standard ¯nance theory (Poterba and Sum- mers, 1992). Our analysis suggests that the underinvestment problem is more severe for lower quality projects, ¯rms with high RD expenditures and/or ¯rms requiring man- agers to make highly ¯rm-speci¯c human capital investments. We also ¯nd that ¯rms give greater performance-based pay (at the expense of ¯xed wages) to managers of higher quality projects to mitigate the incentive for managers to overstate project quality. Thus, man- agers receive greater performance-based pay because they manage higher-quality projects, not that greater performance-based pay causes ¯rm value to increase. ¤We thank Bhagwan Chowdhry, Diego Garcia, Matthias Kahl, Eric Talley, Ivo Welch and seminar partici-