MANAGERIAL INCENTIVES, MONITORING, AND RISK BEARING - A STUDY OF EXECUTIVE-COMPENSATION, OWNERSHIP, AND BOARD STRUCTURE IN INITIAL PUBLIC OFFERINGS

We argue in this study that a resolution of the ambiguity and conflict surrounding executive compensation and corporate control practices re quires a more unified perspective on top management compensation, owne rship, and corporate governance. Drawing from agency and organizationa l research, the study develops and tests a contingency perspective on how organizations seek to ensure appropriate managerial behavior throu gh a balancing of trade-offs between incentive, monitoring, and risk-b earing arrangements. We suggest that (1) the ability of firms to use e xecutive compensation contracts to address managerial incentive proble ms is hampered by risk-bearing concerns that stem from the risk aversi on of top managers, (2) this problem is particularly severe for riskie r firms, and (3) firms seek to address this problem by structuring the ir boards of directors to ensure sufficient monitoring of managerial b ehavior, given the magnitude of the agency problem. This contingency p erspective is then tested using a large sample of initial public offer ing firms. The findings and their implications for the debates about o wnership and control and executive pay for performance are discussed.