股权激励中英文对照外文翻译文献.docx

股权激励中英文对照外文翻译文献.docx

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股权激励中英文对照外文翻译文献

中英文对照外文翻译文献

（文档含英文原文和中文翻译）

InvestorpricingofCEOequityincentives

Abstract

ThemainpurposeofthispaperistoexploreCEOcompensationintheformofstockandoptions.TheobjectiveofCEOcompensationistobetteralignCEO-shareholderinterestsbyinducingCEOstomakemoreoptimal（albeitrisky）investmentdecisions.However,recentresearchsuggeststhattheseincentiveshaveasignificantdown-side（i.e.,theymotivateexecutivestomanipulatereportedearningsandlowerinformationquality）.GiventheconflictbetweenthepositiveCEO-shareholderincentivealignmenteffectandthedysfunctionalinformationqualityeffect,itisanopenempiricalquestionwhetherCEOequityincentivesincreasefirmvalue.WeexaminewhetherCEOequityincentivesarepricedinthefirm-specificexanteequityriskpremiumoverthe1992–2007timeperiod.Ouranalysiscontrolsfortwopotentialstructuralchangesoverthistimeperiod.Thefirstisthe1995DelawareSupremeCourtrulingwhichincreasedprotectionfromtakeovers（anddecreasedrisk）forDelawareincorporatedfirms.Thesecondisthe2002Sarbanes–OxleyActwhichimpactedcorporaterisktaking,equityincentives,andearningsmanagement.Collectively,ourfindingssuggestthatCEOequityincentives,despitebeingassociatedwithlowerinformationquality,increasefirmvaluethroughacostofequitycapitalchannel.

Keywords：

CEOequityincentives，Informationquality，Costofequitycapital

Introduction

Inthisstudy,weinvestigateinvestorpricingofCEOequityincentivesforalargesampleofUSfirmsovertheperiod1992–2007.BecauseincentivesembeddedinCEOcompensationcontractsmaybeexpectedtoinfluencepolicychoicesatthefirmlevel,ourobjectiveistoexaminewhetherCEOequityincentivesinfluencefirmvaluethroughacostofequitycapitalchannel.

Priorresearch（e.g.,Jensenetal.2004;JensenandMurphy1990）suggeststhatequity-basedcompensation,i.e.,CEOcompensationintheformofstockandoptions,providestheCEOapowerfulinducementtotakeactionstoincreaseshareholdervalue（byinvestinginmoreriskybutpositivenetpresentvalu-eprojects）.Putdifferently,

equityincentivesareexpectedtohelpmitigateagencycostsbyaligningtheinterestsoftheCEOwiththoseoftheshareholders,andotherwisehelpcommunicatetoinvestorstheimportantideathatthefirm’sobjectiveistomaximizeshareholderwealth（HallandMurphy2003）.

However,recentresearchcontendsthatequityincentivesalsohaveaperverseordysfunctionaldownside.Inparticular,equity-basedcompensationmakesmanagersmoresensitivetothefirm’sstockprice,andincreasestheirincentivetomanipulatereportedearnings—i.e.,tocreatetheappearanceofmeetingorbeatingearningsbenchmarks（suchasanalysts’forecasts）—inanattempttobolsterthestockpriceandtheirpersonalwealthinvestedinthefirm’sstockandoptions（BergstresserandPhilippon2006;BurnsandKedia2006;ChengandWarfield2005）.Statedinanotherway,CEOequityincentivescanhaveanadverseeffectonthequalityofreportedaccountinginformation.AsnotedbyBebchukandFried（2003）andJensenetal.（2004）,bypromotingperversefinancialreportingincentivesandloweringthequalityofaccountinginformation,equity-basedcompensationcanbeasourceof,ratherthanasolutionfor,theagencyproblem.

Despitetheseargumentsabouttheputativeilleffectsofequityincentives,equity-basedcompensationcontinuestobeasalientcomponentofthetotalpaypackagesforCEOs.Still,giventheconflictbetweenthepositiveincentivealignmenteffectandthedysfunctionaleffectoflowerinformationquality,itisanopenempiricalquestionwhetherCEOequityincentivesincreasefirmvalue.Toourknowledge,priorresearchprovidesmixedevidenceonthisissue.Forexample,Mehran（1995）examines1979–1980compensationdataandfindsthatequity-basedcompensationispositivelyrelatedtothefirm’sTobin’sQ.Bycontrast,Aboody（1996）examinescompensationdataforasampleoffirmsforyears1980through1990,andfindsanegativecorrelationbetweenthevalueofoutstandingoptionsandthefirm’sshareprice,suggestingthatthedilutioneffectdominatestheoptions’incentivealignmenteffect.Moreover,boththesestudiesarebasedondated（i.e.,pre-1991）data.

Inourstudy,weexaminewhetherCEOequityincentivesarerelatedtothefirm-specificexanteequityriskpremium,i.e.,theexcessofthefirm’sexantecostofequitycapitalovertherisk-freeinterestrate（ametricdiscussedbyDhaliwaletal.2006）.ConsistentwithCoreandGuay（2002）,wemeasureCEOequityincentivesasthesensitivityoftheCEO’sstockandoptionportfoliotoa1percentchangeinthestock

price.Basedonasampleof16,502firm-yearobservationsovera16yearperiod（1992–2007）,wefindCEOequityincentivestobenegativelyrelatedtothefirm’sexanteequityriskpremium,suggestingthatthepositiveincentivealignmenteffectdominatesthedysfunctionaleffectoflowerinformationquality.Inotheranalysis,weattempttocontrolfortworegulatory（structural）changesthatoccurredduringthe1992–2007timeperiodofourstudy.AspointedoutbyDaines（2001）,regulatorychangescanhaveanimpactonfirmvaluesandreturnsaswellasthestructureofexecutivecompensation.First,Low（2009）findsthatfollowingthe95DelawareSupremeCourtrulingthatresultedingreatertakeoverprotection,managersreducedfirmriskbyturningdownrisk-increasing（albeitpositiveNPV）projects.Inresponse,firmsincreasedCEOequityincentivestomitigatetheriskaversion.Potentially,theimpactoftheDelawarerulingonmanagers’riskaversionandthefollow-upincreaseinequityincentives（tomitigatetheincreaseinmanagers’riskaversionfollowingtheruling）mayhaveresultedinastructuralchangeinoursampleatleastforfirmsincorporatedinDelaware.Tocontrolforthispotentialstructuralimpact,weperformouranalysisforDelawareincorporatedfirmsfor1996–2007separately.OurresultssuggestthatthefavorableeffectofCEOequityincentivesonfirmvalue（asreflectedinthelowerexanteequityriskpremium）issimilarforDelawarefirmsandotherfirms.

Second,anumberofstudies（e.g.,Cohenetal.2007,2008;Lietal.2008）indicatethatthe2002Sarbanes–OxleyAct（SOX）loweredequityincentives（i.e.,reducedtheproportionofequityincentivestototalcompensationpost-SOX）,reducedmanagerialrisktaking,decreasedspendingonR&Dandcapitalexpenditures,andreducedaccruals-basedearningsmanagementwhileincreasingrealearningsmanagement.Sincerealearningsmanagementispotentiallymoredifficultforinvestorstodetectthanaccruals-basedearningsmanagement,apossibleconsequenceofSOXcouldbeanincreaseinagencycostssince2002.TocontrolforthepotentialstructuralchangesimposedbySOXbothintermsofexpectedreturnsandthelevelofequityincentives,weperformouranalysisforthepre-SOXandpost-SOXtimeperiodsseparately.Foreachofthetwotimeperiods,ourresultssuggestafavorableeffectofCEOequityincentivesonfirmvalue（asreflectedinthelowerexanteequityriskpremium）,althoughtheeffectappearstobestrongerinthepost-SOXperiod.

Ourstudycontributestotheliteratureonthevaluationofequityincentives.Weprovide（toourknowledge）first-timeevidenceontherelationbetweenCEOequityincentivesandtheexantecostofequitycapital.Priorresearchhasfocusedbyandlargeontheconsequencesofmanagerialequityincentivesforfirmperformance（Mehran1995;Hanlonetal.2003）andrisktaking（RajgopalandShevlin2002;Colesetal.2006;Hanlonetal.2004）ratherthanonvaluationperse.Asnotedpreviously,toourknowledgeonlytwopriorstudies（Aboody1996andMehran1995,bothbasedonpre-1991data）haveexaminedthepricingofmanagerialequityincentives,withmixedresults.

Inourstudy,weprovideevidenceonthevaluationeffectsofCEOequityincentivesbasedonmorerecent（1992–2007）data.Byfocusingonmorerecentdata,ourfindingsrelatetoagrowinglineofresearchontheassociationbetweenequity-basedcompensationandaccountinginformationquality.Specifically,Coffee（2004）suggeststhatthe$1millionlimitonthetaxdeductibilityofcashcompensationforseniorexecutivesimposedbyCongressin1993motivatedfirmstomakegreateruseofequitycompensationwhich,inturn,increasedthesensitivityofmanagerstothefirm’sstockprice.BergstresserandPhilippon（2006）andChengandWarfield（2005）provideevidencewhichsuggeststhatequityincentivesarepositivelyrelatedtothemagnitudeofaccruals-basedearningsmanagement.Similarly,BurnsandKedia（2006）andEfendietal.（2007）reportCEOequityincentivestobepositivelyrelatedtoaccountingirregularitiesandthesubsequentrestatementofpreviouslyissuedfinancialstatements.Thus,priorresearchsuggeststhatequity-basedcompensationhasanegativeeffectonthequalityofearningsreportedbyfirms.Consistentwithseveralpublishedempiricalstudiesthatsupportthenotionthatlowerinformationqualityispricedinahighercostofequitycapital（e.g.,Bhattacharyaetal.2003;Francisetal.2005）,CEOequityincentivescouldpotentiallylowerfirmvaluebyincreasingthefirm-specificequityriskpremium.

Asnotedpreviously,wedocumentthatCEOequityincentives（despitetheassociatedlowerinformationquality）arerelatednegativelytothefirm’sexanteequityriskpremium,implyingthatequityincentivesincreasefirmvaluebyloweringthefirm’scostofequitycapital.Thus,ourfindingssuggestthatthepositiveCEO-shareholderincentivealignmenteffectassociatedwithequityincentivesdominatesthedysfunctionalinformationquality