Investor Sentiment and Stock Option Vesting Terms

Management Science, Forthcoming

56 Pages Posted: 18 Dec 2020

See all articles by Shawn X. Huang

Shawn X. Huang

Arizona State University (ASU) - School of Accountancy

Sami Keskek

Florida State University

Juan Manuel Sanchez

University of Texas at San Antonio

Date Written: August 31, 2020

Abstract

Using the details of vesting terms, we document that stock options granted in high investor sentiment periods tend to have shorter vesting periods and durations, and are more likely to vest completely or have a significantly larger fraction vested within one year of the grant date, relative to low sentiment periods. We further find that the sentiment effect on vesting terms is more pronounced when firms are largely held by investors with short investment horizons (e.g., transient institutions). Moreover, short vesting terms in high sentiment periods are positively associated with future M&A activity and capital expenditures. Overall, our findings are consistent with theoretical predictions that, in a speculative market, shareholders incentivize managers with short-term oriented compensation contracts to induce managers to pursue actions maintaining overvaluation.

Keywords: Investor Sentiment, Sentiment, Executive Compensation, Vesting Schedules, Vesting Terms, Stock Options

JEL Classification: E44, G12, G14, G19, G30, J33, M12, M52

Suggested Citation

Huang, Shawn X. and Keskek, Sami and Sanchez, Juan Manuel, Investor Sentiment and Stock Option Vesting Terms (August 31, 2020). Management Science, Forthcoming, Available at SSRN: https://ssrn.com/abstract=3724552

Shawn X. Huang (Contact Author)

Arizona State University (ASU) - School of Accountancy ( email )

Tempe, AZ 85287
United States

Sami Keskek

Florida State University ( email )

Department of Accounting
College of Business
Tallahassee, FL 32306
United States

Juan Manuel Sanchez

University of Texas at San Antonio ( email )

One UTSA Circle
San Antonio, TX 78249
United States

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