Managerial Short-Termism and Investment: Evidence from Accelerated Option Vesting*

By T. Ladika, Zacharias Sautner. Review of Finance, 2019

115 citations recorded by the source corpus.

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.

Subfields: Accounting, Finance

View Paper: https://www.semanticscholar.org/paper/6bc4020bbf8d0bbf7b0eb7f773393d09bec928b5

Citations in the corpus

• East, West, Home's Best: Do Local CEOs Behave Less Myopically? (2019, unknown): “…the city 5 Compared to studies using events, such as Agarwal, Vashishtha, and Venkatachalam (2017), Kraft, Vashishtha, and Venkatachalam (2018), and Ladika and Sautner (2018), the specific performance situations, namely, the potential to underperform analyst forecasts in model (1) and the…”