Abstract

http://ssrn.com/abstract=2270027
 
 

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Equity Vesting and Investment


Alex Edmans


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

Katharina Lewellen


Tuck School of Business at Dartmouth

May 23, 2016

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. 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


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Date posted: May 27, 2013 ; Last revised: May 24, 2016

Suggested Citation

Edmans, Alex and Fang, Vivian W. and Lewellen, Katharina, Equity Vesting and Investment (May 23, 2016). 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
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
Tuck School of Business at Dartmouth ( 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
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