Managerial Incentives and Its Credibility for Voluntary Announcements

28 Pages Posted: 1 Oct 2019

Date Written: October 8, 2018


In this research I find that stock market participants react differently to firms’ voluntary announcements depending on the credibility they lend to the announcing managers. Using a sample of 762 earnings forecasts for the period of 2002-2010 I study intraday trading behavior around the forecast announcements. The results indicate that investors take into account the term-structure of managerial incentives when they trade on the announced forecasts. In particular, I find that positive forecast surprises by the managers with larger short-term equity-based compensation are treated as less credible by investors and they sell. Furthermore, the results also show that the biggest source of market’s mistrust comes from short-term option grants. The opposite is true for the announcements by the CEOs with larger long-term equity-based compensation i.e. investors buy abnormally more following positive earnings forecasts, specifically when the announcing CEO incentives contain larger long-term stock grants.

Keywords: Managerial Incentives, CEO Compensation, Voluntary Disclosures, Credibility, High Frequency Trading, Net Abnormal Buying

JEL Classification: G14, G30

Suggested Citation

Papiashvili, Nino, Managerial Incentives and Its Credibility for Voluntary Announcements (October 8, 2018). Available at SSRN: or

Nino Papiashvili (Contact Author)

Ulm University ( email )

Institute of Finance
Helmholtzstraße 18
Ulm, 89081

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