Review of Finance Vol. 24 No. 2 2020
Managerial Short-Termism and Investment: Evidence from Accelerated Option Vesting
open access
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.
- DOI
- 10.1093/rof/rfz012
- Volume
- 24
- Issue
- 2
- Pages
- 305-344
- Language
- en
- Sources
- bibtex:phds-export.bib openalex crossref