Leverage decision and manager compensation with choice of effort and volatility

Leverage decision and manager compensation with choice of effort and volatility

Cadenillasa, Cvitani and Zapatero (CCZ) in an upcoming Journal of Financial Economics (JFE) paper, model the incentive effects of paying executives with either levered, or unlevered, equity.

Their model, which is probably too complex to use in most undergraduate classes, separates managers based on ability