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date: 15 August 2020

Abstract and Keywords

There are two major types of agency problems: adverse selection and moral hazard. Changing the transparency of executive compensation is one solution to reducing the two agency problems. I define transparency as any mechanism that reduces the information asymmetry between executives and investors. In this chapter, I discuss how executive compensation is structured, and discuss major regulations that have affected compensation. Finally, I examine how increasing the transparency of these schemes affects the pay level and performance relationship to the executives and how executives modify their behavior to affect transparency as a result of their pay structure.

Keywords: asymmetric information, executive compensation, feedback effect, transparency, agency problems

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