Abstract
Using the details of vesting terms, we document that stock options granted in high-investor-sentiment periods tend to have shorter vesting periods and durations and are more likely to vest completely or have a significantly larger fraction vested within one year of the grant date, relative to low-sentiment periods. We further find that the sentiment effect on vesting terms is more pronounced when firms are largely held by investors with short investment horizons (e.g., transient institutions). Moreover, short vesting terms in high-sentiment periods are positively associated with future mergers-andacquisitions activity and capital expenditures. Overall, our findings are consistent with theoretical predictions that, in a speculative market, shareholders incentivize managers with short-term-oriented compensation contracts to induce managers to pursue actions maintaining overvaluation.
Original language | English (US) |
---|---|
Pages (from-to) | 773-795 |
Number of pages | 23 |
Journal | Management Science |
Volume | 68 |
Issue number | 1 |
DOIs | |
State | Published - Jan 2022 |
Externally published | Yes |
Keywords
- Executive compensation
- Investor sentiment
- Stock options
- Vesting schedules
- Vesting terms
ASJC Scopus subject areas
- Strategy and Management
- Management Science and Operations Research