Net Share Issuance and Asset Growth Effects: The Role of Managerial Incentives

15:30-17:30, Friday, December 6, 2019

I-206, Boxue Building, DUFE

Dr. Zhao WANG is now an Assistant Professor of finance at Capital University of Economics and Business. In 2019, he received his Ph.D. in Business Administration (Finance) from University of Rhode Island. His research interests are Corporate Disclosure, Capital Market, Institutional Investors and Executive Compensation.

In the presence of asymmetric information, managerial equity incentives mitigate the managers’ empire-building motives while increasing their market-timing motives. If the market underreacts to these motives, the negative return predicting effects of net share issuance (NSI) and asset growth (AG) would be stronger, respectively, among stocks with higher and lower managerial equity incentives, respectively. Our evidence supports this prediction. A hybrid strategy, exploiting the NSI and AG effects in different groups of stocks screened by managerial equity incentives, attains significant alphas beyond transaction costs, even after controlling for the investment and profitability factors known to attenuate the two effects.