Accounting and Finance Seminar: Naveen Gondhi, INSEAD

Title: Incentivizing Effort and Informing Investment: The Dual Role of Stock Prices

Info about event

Time

Thursday 1 September 2022,  at 12:00 - 13:00

Location

Fuglesangs Allé 4, 8210 Aarhus V, Building 2630, Room 101

Organizer

Matthias Lassak

Presenter: Naveen Gondhi, INSEAD

Title: Incentivizing Effort and Informing Investment: The Dual Role of Stock Prices

Abstract: Stock prices reflect firm performance and aggregate investor information about investment opportunities. We show that these dual roles are in tension: when prices are more informative about future investment, they are less effective at incentivizing managerial effort. Overall firm value need not increase with price informativeness; both decreasing transparency and allowing for ex-post inefficient investment can increase firm value. We show that standard empirical measures of price efficiency are incomplete and derive testable predictions for the price-sensitivity and composition of managerial compensation

Areas of research: Information economics, market structure, asset pricing

Host: Matthias Lassak