Shifting Corporate Culture: Executive Stock Ownership Plan Adoptions and Incentives to Meet or Just Beat Analysts’ Expectations
Posted: 23 Dec 2014 Last revised: 17 Jul 2019
Date Written: March 23, 2018
This paper investigates whether adoptions of executive stock ownership plans coincide with decreased incentives to meet or just beat analysts’ near-term EPS forecasts. Firms often assert that ownership plans focus executives on long-term performance. I find that the impact of these adoptions on meeting or just beating analysts’ EPS forecasts differs depending on whether the plan binds the CEO to reach ownership targets by a specified date. In particular, I find that firms that adopt plans requiring an increase in CEO ownership exhibit a lower propensity to meet or just beat earnings forecasts following plan adoptions. In contrast, firms that adopt plans that require no increase exhibit no change in the propensity to meet or just beat. The results suggest that firms use binding ownership plans to shift executives’ focus from near-term earnings benchmarks to long-term value creation.
Keywords: corporate culture; analyst forecasts; managerial ownership; benchmark beating; corporate governance
JEL Classification: D22, G32, G34, M41
Suggested Citation: Suggested Citation