Stock Liquidity and Managerial Short-Termism

Chen, Yangyang and Rhee, Ghon S and Veeraraghavan, Madhu and Zolotoy, Leon (2015) Stock Liquidity and Managerial Short-Termism. Journal of Banking & Finance, 60. pp. 44-59.

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We examine whether stock liquidity exacerbates or mitigates managerial short-termism. Utilizing earnings management as a proxy for managerial short-termism, we establish three major findings. First, firms with liquid stocks engage in less accrual-based and real earnings management. Second, the effect of stock liquidity on earnings management is amplified for firms with high levels of managerial pay-for-performance sensitivity. Third, the positive association between the intensity of earnings management and firm cost of capital is evident only for firms with low stock liquidity. Our findings are consistent with the threat of blockholder exit as the main governance channel through which stock liquidity discourages opportunistic earnings management and mitigates managerial short-termism.

Item Type: Article
Uncontrolled Keywords: Stock Liquidity;Managerial Short-Termism;Earnings Management;Corporate Governance;Cost of Capital
Subjects: ?? Finance ??
Divisions: Finance and Strategy
Depositing User: Mr. Ramesh Kamath
Date Deposited: 11 Sep 2018 17:23
Last Modified: 18 Feb 2019 11:26

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