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FINANCIAL CONTRACTING AND OPERATING PERFORMANCE: THE CASE FOR OBRA AND EFFICIENT CONTRACTING
Download This ArticleOlivier Maisondieu-Laforge, Yong Ho Kim, Young S. Kim
Abstract
When corporate governance is effective, new managerial contracts should maximize shareholder wealth. This paper examines operating performance measures after the Omnibus Budget Reconciliation Act (OBRA) of 1993 was passed. We find that firms affected by OBRA’s $1 million cap on cash compensation experience an improvement in operating performance improves during the three years following contract revisions. Although prior performance was low, the postcontracting performance for affected firms is on par with comparison group. These findings are consistent with effective corporate governance and efficient contracting and contrary to expropriation theory.
Keywords: Contracting, Expropriation, Corporate governance, OBRA, CEO, Operating Performance
How to cite this paper: Maisondieu-Laforge, O., Kim, Y. H., & Kim, Y. S. (2007). Financial contracting and operating performance: The case for OBRA and efficient contracting. Corporate Ownership & Control, 4(4-1), 217-227. https://doi.org/10.22495/cocv4i4c1p6
