Download This PaperEquity Vesting and Investment
Review of Financial Studies, Forthcoming
European Corporate Governance Institute (ECGI) - Finance Working Paper No. 379/2013
Jacobs Levy Equity Management Center for Quantitative Financial Research Paper
65 Pages Posted: 27 May 2013 Last revised: 20 Oct 2018
There are 3 versions of this paper
Equity Vesting and Investment
Equity Vesting and Managerial Myopia
Equity Vesting and Managerial Myopia
Date Written: December 16, 2016
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 0.2% decline in growth in R&D plus net capital expenditure (scaled by total assets), 11% of the average investment-to-assets ratio. Vesting equity is also associated with positive analyst forecast revisions and positive 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.
Keywords: Investment, Short-Termism, Managerial Myopia, Vesting, CEO Incentives
JEL Classification: G31, G34, M12, M52
Suggested Citation: Suggested Citation
European Corporate Governance Institute (ECGI) ( email )
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Rue Ducale 1 Hertogsstraat
1000 Brussels
Belgium
Vivian W. Fang
European Corporate Governance Institute (ECGI) ( email )
c/o the Royal Academies of Belgium
Rue Ducale 1 Hertogsstraat
1000 Brussels
Belgium