Managerial Myopia and the Mortgage Meltdown

53 Pages Posted: 28 Jul 2016 Last revised: 15 Jul 2017

See all articles by Adam C. Kolasinski

Adam C. Kolasinski

Texas A&M University - Department of Finance

Nan Yang

Hong Kong Polytechnic University - School of Accounting and Finance

Date Written: June 15, 2017

Abstract

Prominent policy makers assert that managerial short-termism was at the root of the subprime crisis of 2007-2009. Prior scholarly research, however, largely rejects this assertion. Using a more comprehensive measure of CEO incentives for short-termism, we uncover evidence that short-termism indeed played a role. Firms whose CEOs were contractually allowed to sell or exercise more of the their stock and options holdings sooner had more subprime exposure, a higher probability of financial distress, and lower risk-adjusted stock returns during the crisis, as well as higher fines and settlements for subprime-related fraud.

Keywords: Financial Crisis, Subprime Mortgages, Financial Fraud, CEO Incentives, CEO Pay

JEL Classification: G01, G21, G23, G24, G28, G34, J33

Suggested Citation

Kolasinski, Adam C. and Yang, Nan, Managerial Myopia and the Mortgage Meltdown (June 15, 2017). Journal of Financial Economics (JFE), Forthcoming. Available at SSRN: https://ssrn.com/abstract=2815013 or http://dx.doi.org/10.2139/ssrn.2815013

Adam C. Kolasinski (Contact Author)

Texas A&M University - Department of Finance ( email )

360 Wehner
College Station, TX 77843-4218
United States

Nan Yang

Hong Kong Polytechnic University - School of Accounting and Finance ( email )

Hung Hom
Kowloon
Hong Kong

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