There is a trade-off between reliable information and maximizing firm value. There may be an incentive for insider trading which would be costly to outside investors. The manager should be paid more to compensate for the additional risk. There is a higher risk for the manager because his/her pay is affected by factors outside his/her control and not reflective of his/her effort. Agency theory predicts that the manager will shirk because of self-interest. Manager still has incentive to bias information to try to affect stock price. Shirking occurs because there is moral hazard - the owners cannot observe the manager. Information is more likely to be reliable, but the stock value of the company may be less than if the other alternative is chosen. Could lead to more incentive to withhold information from shareholders for personal benefit