Ladika, T. and Sautner, Z. (2020). Managerial Short-Termism and Investment: Evidence from Accelerated Option Vesting Review of Finance, 24(2):305–344.
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Affiliated authorTomislav Ladika
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Publication year2020
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JournalReview of Finance
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{\textquoteright}s adoption was staggered almost randomly by firms{\textquoteright} fiscal year-ends. CEOs cut investment and reported higher short-term earnings after option acceleration, and they subsequently increased equity sales.