Equity Vesting and Investment
London Business School - Institute of Finance and Accounting; European Corporate Governance Institute (ECGI); Centre for Economic Policy Research (CEPR)
Vivian W. Fang
University of Minnesota - Twin Cities - Department of Accounting
Tuck School of Business at Dartmouth
May 23, 2016
ECGI - Finance Working Paper No. 379/2013
This paper links the CEO’s concerns for the current stock price to reductions in real investment. We identify short-term concerns using the amount of stock and options scheduled to vest in a given quarter. A one standard deviation increase in vesting equity is associated with an annualized 0.4% decline in growth in R&D plus net capital expenditure (scaled by total assets), 24% of the average investment-to-assets ratio. Vesting equity is also associated with more positive analyst forecast revisions and earnings guidance during the same quarter. More broadly, by introducing a measure of incentives that is determined by equity grants made several years prior, and thus unlikely to be driven by current investment opportunities, our paper provides evidence that CEO contracts affect real decisions.
Number of Pages in PDF File: 51
Keywords: Investment, Short-Termism, Managerial Myopia, Vesting, CEO Incentives
JEL Classification: G31, G34, M12, M52
Date posted: May 27, 2013 ; Last revised: May 24, 2016
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