Equity-linked managerial incentives and firm performance

Several economics and finance disciplines study the contractual organization and financial operation of firms: theory of the firm, corporate finance, corporate governance as well as finance and accounting.
Theory of the firm seeks to elucidate fundamental economic mechanisms which distinguish firms as organizational units. Over the years many formal and informal theories were proposed. Seeking to order these frequently complex and disparate contributions, Gibbons [2005] distinguished four main theories of the firm: the rent seeking, property rights, incentive systems and adaptation theory. He then clarified the payoff and decision aspects of these theories and concluded that the incentive systems and property rights theories can be characterized by their focus on the ex ante incentive alignment, through contracts in the incentive systems theory and through asset ownership in the property rights theory, while the rent seeking and adaptation theories define the governance of ex post decisions. Gibbons presented further a complementary characterization of the theories of the firm into those based on contracts and on control.