Abstract:We provide a setting where due to a lack of sophistication, possibly arising from high opportunity costs of learning about accounting conventions and financial markets, nave (unsophisticated) investors are unable to decipher true executive compensation accurately. Expected compensation is therefore higher when such investors form a more significant clientele in the market for a firm’s stock. Our model further suggests that increased information asymmetry between informed and uninformed traders may dete… Show more
scite is a Brooklyn-based organization that helps researchers better discover and understand research articles through Smart Citations–citations that display the context of the citation and describe whether the article provides supporting or contrasting evidence. scite is used by students and researchers from around the world and is funded in part by the National Science Foundation and the National Institute on Drug Abuse of the National Institutes of Health.