Abstract

http://ssrn.com/abstract=687109
 
 

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Stock Market Information Production and Executive Incentives


Qiang Kang


Florida International University (FIU) - Department of Finance

Qiao Liu


University of Hong Kong - School of Economics and Finance; Peking University - Guang Hua School of Management

June 1, 2008

Journal of Corporate Finance, Vol. 14, pp. 484-498, 2008

Abstract:     
This paper investigates the effect of stock market microstructure on managerial compensation schemes. We propose and empirically demonstrate that the sensitivity of chief executive officer's (CEO's) compensations to changes in stockholders' value is higher when the stock market facilitates the production and aggregation of private or public information. Using stock trading data and analysts' earnings forecast data, we construct five different measures of the information content in stock prices. These measures, separately and jointly, account for the cross-sectional variations in CEO pay-performance sensitivity well. Our results are robust to the choice of samples, incentive measures, model specifications, and estimation methods. We extend the analysis to nonCEO executives and executive teams and find similar results.

Number of Pages in PDF File: 29

Keywords: Market microstructure, Pay-performance sensitivity, Probability of informed trading (PIN), Analysts' earnings forecasts

JEL Classification: D80, G14, G34, J33

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Date posted: March 21, 2005 ; Last revised: March 15, 2011

Suggested Citation

Kang, Qiang and Liu, Qiao, Stock Market Information Production and Executive Incentives (June 1, 2008). Journal of Corporate Finance, Vol. 14, pp. 484-498, 2008. Available at SSRN: http://ssrn.com/abstract=687109 or http://dx.doi.org/10.2139/ssrn.687109

Contact Information

Qiang Kang (Contact Author)
Florida International University (FIU) - Department of Finance ( email )
University Park
11200 SW 8th Street
Miami, FL 33199
United States
Qiao Liu
University of Hong Kong - School of Economics and Finance ( email )
School of Economics and Finance
Pokfulam
Hong Kong
Hong Kong
852-2859-1059 (Phone)
852-2548-1152 (Fax)
Peking University - Guang Hua School of Management ( email )
Peking University
Beijing, Beijing 100871
China
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