Managerial Myopia and the Mortgage Meltdown
53 Pages Posted: 28 Jul 2016 Last revised: 7 Oct 2019
Date Written: June 15, 2017
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: Suggested Citation