When deciding on managerial continuation or termination, a _rm's board can rely on the performance measure realization and active monitoring, which provides additional information about a manager's ability.
Abstract
We show that more informative performance measurement can surprisingly increase the value of monitoring. This can be for several reasons. First, if the signal realization leads to negative belief updating on managerial ability yet does not trigger termination. Second, if increased precision increases the rate at which a signal that triggers termination is generated by a high ability manager faster than the rate at which it is generated by a low ability manager. Third, with a composite signal that measures several aspects of _rm value, if increasing signal precision also changes the weight on managerial ability in the signal distribution
About Nicolas Sahuguet
Nicolas has vary research interests, ranging from Political Economy to Applied Theory and Finance. He has published in many top journals, such as the Review of Economic Studies, the Journal of the European Economic Association, the Journal of Economic Theory, the Economic Journal and the Journal of Public Economics.
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