Managerial myopia and the mortgage meltdown

Adam C. Kolasinski and Nan Yang

Journal of Financial Economics, 2018, vol. 128, issue 3, 466-485

Abstract: Prominent policy makers assert that managerial short-termism was at the root of the subprime crisis of 2007–2009. Prior scholarly research, however, largely rejects this assertion. Using a more comprehensive measure of Chief Executive Officer (CEO) incentives for short-termism, we uncover evidence that short-termism indeed played a role. Firms whose CEOs were contractually allowed to sell or exercise more of their stock and options holdings sooner had more subprime exposure, a higher probability of financial distress, and lower risk-adjusted stock returns during the crisis, as well as higher fines and settlements for subprime-related fraud.

Keywords: Financial crisis; Subprime mortgages; Financial fraud; CEO incentives; CEO pay (search for similar items in EconPapers)
JEL-codes: G01 G21 G23 G24 G34 M12 (search for similar items in EconPapers)
Date: 2018
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (16)

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Persistent link: https://EconPapers.repec.org/RePEc:eee:jfinec:v:128:y:2018:i:3:p:466-485

DOI: 10.1016/j.jfineco.2017.03.010

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