Bonuses and non-public information in publicly traded firms

Rachel M. Hayes*, Scott J Schaefer

*Corresponding author for this work

Research output: Contribution to journalReview articlepeer-review

8 Scopus citations


Recent research in accounting explores how firms use "individual" or "non-financial" measures of performance in executive compensation contracts. We model a firm that conditions bonus payments to executives on information that is not available to those outside the firm. This raises two issues. First, market participants may use the magnitude of such payments to infer the non-public information. Second, because information that is non-public is, by extension, non-verifiable, the firm cannot write explicit contracts based on it. Combining the relational incentive contracts and financial signaling literatures, we examine equilibria of a signaling game in which bonus payments from a firm to a manager convey non-public information regarding the firm's future cash flows. Our main result is that increases in corporate myopia can, under some conditions, lead to increased profits. This finding is contrary to that typically found in financial signaling models.

Original languageEnglish (US)
Pages (from-to)431-464
Number of pages34
JournalReview of Accounting Studies
Issue number4
StatePublished - Dec 2005


  • CEO compensation
  • Financial signaling
  • Implicit contracts

ASJC Scopus subject areas

  • Accounting
  • Business, Management and Accounting(all)


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