CEO incentive compensation and stock liquidity

Hongrui Feng () and Shu Yan
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Hongrui Feng: Penn State Behrend

Review of Quantitative Finance and Accounting, 2019, vol. 53, issue 4, No 5, 1069-1098

Abstract: Abstract We document that the CEO pay-for-performance incentive positively predicts firm’s stock liquidity. The evidence is consistent with the hypothesis that, to mitigate their undiversified price risk and reduce the transaction costs, CEOs with high pay-for-performance incentive compensations exert extra efforts in shaping firms’ information environment to improve stock liquidity. We further identify three internal and two external channels through which incentivized CEOs stimulate firms’ stock liquidity. Specifically, we find that firms with highly incentivized CEOs tend to provide earnings guidance, file more readable 10-K reports, and perform more stock splits. In addition, these firms attract larger analyst following and have lower earnings forecast dispersions.

Keywords: CEO incentive compensation; Stock liquidity; 10-K reports; Stock split; Earnings management (search for similar items in EconPapers)
JEL-codes: G12 G32 J33 (search for similar items in EconPapers)
Date: 2019
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Citations: View citations in EconPapers (7)

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DOI: 10.1007/s11156-018-0775-9

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