Managerial Short-Termism and Investment: Evidence from Accelerated Option Vesting
| Authors | |
|---|---|
| Publication date | 03-2020 |
| Journal | Review of Finance |
| Volume | Issue number | 24 | 2 |
| Pages (from-to) | 305–344 |
| Number of pages | 40 |
| Organisations |
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| Abstract | We show that executives cut investment when their incentives become more short term. We examine a unique event in which hundreds of firms eliminated option vesting periods to avoid a drop in income under accounting rule FAS 123-R. This event allowed executives to exercise options earlier and thus profit from boosting short-term performance. Our identification exploits that FAS 123-R’s adoption was staggered almost randomly by firms’ fiscal year-ends. CEOs cut investment and reported higher short-term earnings after option acceleration, and they subsequently increased equity sales. |
| Document type | Article |
| Note | With supplementary file |
| Language | English |
| Published at | https://doi.org/10.1093/rof/rfz012 |
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