Edmans, Fang, and Huang (2018)

Edmans, Alex, Vivian Fang, and Allen Huang. “The Long-Term Consequences of Short-Term Incentives.” Working paper (London Business School), 2018.

From the abstract: “This paper shows that short-term stock price concerns induce CEOs to take value-reducing actions. Vesting equity, our measure of short-term concerns, is positively associated with the probability of a firm repurchasing shares, the amount of shares repurchased, and the probability of the firm announcing a merger or acquisition (M&A). When vesting equity increases, stock returns are more positive in the two quarters surrounding both repurchases and M&A, but more negative in the two years following repurchases and four years following M&A. We show that a potential driver of the negative long-run returns to M&A is subsequent goodwill impairment. These results are inconsistent with CEOs buying underpriced stock or companies to maximize long-run shareholder value, but consistent with these actions being used to boost the short-term stock price and improve the conditions for CEO equity sales.”

Link: https://papers.ssrn.com/sol3/papers.cfm?abstract_id=3037354