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We find an exogenous removal of short-sale constraints curbs CEO short-termism as measured by longer compensation duration. This is consistent with the agency model of Bolton, Scheinkman, and Xiong (2006)… Click to show full abstract
We find an exogenous removal of short-sale constraints curbs CEO short-termism as measured by longer compensation duration. This is consistent with the agency model of Bolton, Scheinkman, and Xiong (2006) where optimal compensation contracts emphasize short-term performance when stock prices include a speculative component due to investor disagreement and short-sale constraints. Further supporting evidence shows that the compensation duration effect is concentrated among firms with high market disagreement, high asymmetric information, and low analyst coverage. Firms with no short-sale constraint also exhibit less overinvestment and earnings management.
Journal Title: Contemporary Accounting Research
Year Published: 2021
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