Performance Evaluation, Managerial Hedging, and Contract Termination

The authors thank three anonymous referees and the editor for their thoughtful comments that helped them to improve this paper. They thank Hengjie Ai, Andrea Buffa, Zhaohui Chen, Jakša Cvitanić, Paolo Guasoni, Zhiguo He, Dirk Jenter, Jianjun Miao, Philip Stark, Tak-Yuen Wong, and Hongda Zhong for helpful comments. They also thank seminar participants at the Shanghai Advanced Institute of Finance; the Fanhai International School of Finance; Zhejiang University; Fudan University; Peking University; Sichuan University; the National University of Singapore; Nanyang Technological University; Singapore Management University; the Center for Mathematical Economics at Bielefeld University; Boston University; the 2017 International Macro-Finance Conference at Southwestern University of Finance and Economics; the 2017 Summer Institute of Finance Conference in Qingdao; the 2017 European Finance Association Annual Meetings; the Workshop on Backward Stochastic Differential Equations, Stochastic Partial Differential Equations, and Their Applications at the University of Edinburgh; Advances in Stochastic Analysis for Risk Modeling in Luminy; and the 2018 China International Conference in Finance. This paper was circulated previously under the title “Optimal contracting with unobservable managerial hedging.”