An Incentive Model of Governance of IT Firm

Abstract

Based on the characteristics of IT firm, the principal-agent model between the owner and manager of IT firm is established by use of information economics theory, the gross benefit of the owner or manager is compared in two situations of symmetric information and asymmetric information, and the relations are studied among risk aversion, stock incentive, effort level of the manager, contract time and gross benefit of the owner etc.. The study shows that choosing low risk–aversion manager and stressing the stock incentive to the manager will do help to the improvement of the owner’ benefit of IT firm, the longer the contract time is and the greater the stock incentive to manager will be.