Edmans, A, Fang, V W and Huang, A H (2022) The Long-Term Consequences of Short-Term Incentives. Journal of Accounting Research, 60 (3). pp. 1007-1046. ISSN 0021-8456
Abstract
This paper studies the long-term consequences of actions induced by vesting equity, a measure of short-term incentives. Vesting equity is positively associated with the probability of a firm repurchasing shares, the amount of shares repurchased, and the probability of the firm announcing a merger or acquisition (M&A). However, it is also associated with more negative long-term returns over the 2-3 years following repurchases and 4 years following M&A, as well as future M&A goodwill impairment. These results are inconsistent with CEOs buying underpriced stock or companies to maximize long-run shareholder value, but consistent with these actions being used to boost the short-term stock price and thus equity sale proceeds. CEOs sell their own stock shortly after using company money to buy the firm’s stock, also inconsistent with repurchases being motivated by undervaluation.
More Details
Item Type: | Article |
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Subject Areas: | Finance |
Additional Information: |
Edmans gratefully acknowledges financial support from European
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Funder Name: | European Research Council |
Date Deposited: | 24 Sep 2021 10:29 |
Date of first compliant deposit: | 20 Sep 2021 |
Subjects: |
Financial markets Mergers and acquisitions Accounting valuations Pay incentives |
Last Modified: | 05 Nov 2024 02:51 |
URI: | https://lbsresearch.london.edu/id/eprint/1971 |