Incentive-Compatible Mechanism: A Set of Corporate Governance Reforms
Author:
Maria Ionela DAMIAN, Ph.D. Student; Sorana Mihaela MĂNOIU, Ph.D. Student; Associate prof. Carmen Giorgiana BONACI, Ph.D.
JEL:
M12, G30
DOI:
Keywords:
corporate governance, compensation, disciplinary mechanisms, incentive-compatible mechanism, incentive
Abstract:
The main goal of this paper is to present a comprehensive set of corporate governance reforms intended to align corporate insiders’ and auditors’ behavior and decisions with the interests of investors. The first part of the paper establishes the place of equity-based executive compensation among the disciplinary mechanisms. The second part’s purpose is to discuss the issue of equity-based compensation that carries certain benefits, but it also produces undesirable incentives that might encourage executives to commit securities fraud or at least sugarcoat financial reporting. The last part of this paper discusses the governance mechanisms that contribute to honest reporting by removing the conflict of interest between managers and investors.\r\n\r\n