Abstract

http://ssrn.com/abstract=2270027
 
 

Citations (1)



 


 



Equity Vesting and Managerial Myopia


Alex Edmans


London Business School - Institute of Finance and Accounting; University of Pennsylvania - The Wharton School; National Bureau of Economic Research (NBER); European Corporate Governance Institute (ECGI); Centre for Economic Policy Research (CEPR)

Vivian W. Fang


University of Minnesota - Twin Cities - Department of Accounting

Katharina Lewellen


Dartmouth College - Tuck School of Business

May 12, 2015

ECGI - Finance Working Paper No. 379/2013

Abstract:     
This paper links the CEO’s concerns for the current stock price to reductions in real investment. These concerns depend on the amount of equity he intends to sell in the short-term, but actual equity sales are an endogenous decision. We use the amount of stock and options scheduled to vest in a given year as an instrument for equity sales. Such vesting is determined by equity grants made several years prior, and thus is unlikely to be driven by current investment opportunities; it also significantly predicts actual sales. An interquartile increase in instrumented equity sales is associated with a 0.14% decline in the growth of R&D/assets, 2.6% of the average R&D/assets ratio. Vesting-induced equity sales are also associated with a higher likelihood of meeting or marginally beating analyst earnings forecasts and higher earnings announcement returns. More broadly, by introducing a measure of incentives that is not driven by the current contracting environment – vesting-induced equity sales – our paper suggests that CEO contracts affect real outcomes.

Number of Pages in PDF File: 52

Keywords: Short-Termism, Managerial Myopia, Vesting, CEO Incentives

JEL Classification: G31, G34


Open PDF in Browser Download This Paper

Date posted: May 27, 2013 ; Last revised: May 13, 2015

Suggested Citation

Edmans, Alex and Fang, Vivian W. and Lewellen, Katharina, Equity Vesting and Managerial Myopia (May 12, 2015). ECGI - Finance Working Paper No. 379/2013. Available at SSRN: http://ssrn.com/abstract=2270027 or http://dx.doi.org/10.2139/ssrn.2270027

Contact Information

Alex Edmans (Contact Author)
London Business School - Institute of Finance and Accounting ( email )
Sussex Place
Regent's Park
London NW1 4SA
United Kingdom
University of Pennsylvania - The Wharton School ( email )
3733 Spruce Street
Philadelphia, PA 19104-6374
United States
National Bureau of Economic Research (NBER)
1050 Massachusetts Avenue
Cambridge, MA 02138
United States
European Corporate Governance Institute (ECGI) ( email )
c/o ECARES ULB CP 114
B-1050 Brussels
Belgium
Centre for Economic Policy Research (CEPR) ( email )
77 Bastwick Street
London, EC1V 3PZ
United Kingdom
Vivian W. Fang
University of Minnesota - Twin Cities - Department of Accounting ( email )
321 19th Avenue South
Room 3-109
Minneapolis, MN 55455
United States
HOME PAGE: http://www.vivianfang.org
Katharina Lewellen
Dartmouth College - Tuck School of Business ( email )
Hanover, NH 03755
United States
603-646-8247 (Phone)
HOME PAGE: http://oracle-www.dartmouth.edu/dart/groucho/tuck_faculty_and_research.faculty_profile?p_id=QE2X25
Feedback to SSRN


Paper statistics
Abstract Views: 5,558
Downloads: 1,158
Download Rank: 9,983
Citations:  1

© 2015 Social Science Electronic Publishing, Inc. All Rights Reserved.  FAQ   Terms of Use   Privacy Policy   Copyright   Contact Us
This page was processed by apollo7 in 0.328 seconds