Paper accepted in Journal of Financial Economics for prof. Morellec
The paper of Professor Morellec "Agency conflicts and short- vs long-termism in corporate policies" co-authored with Simon Mayer and Sebastian Gryglewicz has been accepted for publication in the Journal of Financial Economics.
Abstract : We build a dynamic agency model in which the agent controls both current earnings via short-term investment and firm growth via long-term investment. Under the optimal contract, agency conflicts can induce short- and long-term investment levels beyond first best, leading to short- or long-termism in corporate policies. The paper analytically shows how firm characteristics shape the optimal contract and the horizon of corporate policies, thereby generating a number of novel empirical predictions on the optimality of short- vs. long-termism. It also demonstrates that combining short- and long-term agency conflicts naturally leads to asymmetric pay-for-performance in managerial contracts.