LAUSR

Prominent policy makers assert that managerial short-termism was at the root of the subprime mortgage crisis of 2007-2009. Prior scholarly research, however, largely rejects this assertion. Using a more comprehensive measure of CEO incentives for short-termism, we uncover evidence that short-termism indeed played a role in the crisis. We find that shorter vesting schedules for CEO equity holdings are positively related to firm exposure to subprime mortgage assets, as well as a higher probability of financial distress and lower risk-adjusted stock returns during the crisis. Furthermore, shorter vesting schedules are positively associated with fines and settlements for subprime-related fraud.