Suspiciously Short: CEOs With Stock Options May Purposely Miss Earnings Targets

Download Now Free registration required

Executive Summary

Giving managers stock option grants aligns their interests with those of shareholders, at least according to conventional wisdom. Research has confirmed that this is usually true, but a new study shows that in some cases, CEOs purposely miss earnings targets to cause a drop in stock prices just before the time for stock option grants - an outcome clearly inconsistent with shareholders' interests. For firms that set aside a portion of earnings to bolster future statements - a practice known as managing earnings downward - the likelihood of missing targets increased with stock-option grants.

  • Format: HTML
  • Size: 0 KB