Article ID | Journal | Published Year | Pages | File Type |
---|---|---|---|---|
7361759 | Journal of Financial Economics | 2018 | 40 Pages |
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.
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Authors
Adam C. Kolasinski, Nan Yang,