Managerial incentives for short-term results

Article Abstract:

It has been stated often that managers in the U.S. make most decisions emphasizing short-term gains at the expense of the long-term interests of shareholders. Managerial incentives for such short-term-based decisions is investigated, with it found that situations exist in which managers with private information about their decisions are inclined to make decisions that result in short-term profits but that are not in the best long-term interest of shareholders. This inclination is a result of attempts by the managers to enhance their reputation in the short-term, which they hope will lead to increases in their salaries. This trend has been found to be inversely related to the managers' experience level, the length of their contracts, and the risk of the cash flows of the firms.

Decision-making, Models, Decision making, Management, Economic aspects, Stockholders, Executives

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Good timing: CEO stock option awards and company news announcements

Article Abstract:

This article analyzes the timing of CEO stock option awards, as a method of investigating corporate managers' influence over the terms of their own compensation. In a sample of 620 stock option awards to CEOs of Fortune 500 companies between 1992 and 1994, I find that the timing of awards coincides with favorable movements in company stock prices. Patterns of companies' quarterly earnings announcements are consistent with an interpretation that CEOs receive stock option awards shortly before favorable corporate news. I evaluate and reject several alternative explanations of the results, including insider trading and the manipulation of news announcement dates. (Reprinted by permission of the publisher.)

Compensation and benefits, Profits, Stock options, Chief executive officers, Corporate profits

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