Publication: Managerial incentives for attracting attention and firm investor base
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2013-10
Defense date
2013-11-28
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Abstract
This thesis studies how managerial incentives relate to strategic transmission of
soft information from managers to investors in order to attract attention of financial
markets. Additionally, I study trading reaction of different investors (large sophisticated
vs. small individual) to CEO voluntary announcements and how their trading is affected
when managerial incentives are taken into account. I use large panel data and several
alternative proxies for soft information together with intraday trading data to distinguish
between the types of investors. The findings suggest that an increase in the proportion
of managerial variable compensation is correlated with the increased use of attention
attracting mechanisms like stock split announcements, CEO annual EPS forecasts and
firm media coverage. Remarkably, such an increase in attention is not for free given that
the probability of CEO turnover increases if managers fail to obtain positive stock
returns. Further, I examine investors' trading reaction to managerial voluntary
disclosures (EPS forecasts) and find that small investors follow simple trading strategy
and buy on positive CEO announcements, whereas large investors react in a contrarian
way. In addition, I find that both types of investors take into account managerial
incentives while trading, though in opposite ways. Small investors see managerial
variable compensation as an incentive to lure them into more buying to optimistic
announcements. Large investors, on the other hand, look at managerial pay-forperformance
incentives as a mechanism of aligning managers' and shareholders'
interests.
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Keywords
Incentivos económicos, Comunicación en la empresa, Inversiones