Trading Away Incentives

15:40-17:00, Friday, September 13, 2024

I-206, Boxue Building

Dr. Shuo Xia is now a Head of Research Group at the Halle Institute for Economic Research and an Assistant Professor of Financial Economics at Leipzig University. He earned his Ph.D. in Finance from Erasmus University Rotterdam in 2018. His research interests include Corporate Finance, Corporate Governance, and Labor Economics. His paper was published in the Journal of Finance and the Journal of Financial and Quantitative Analysis. His research has been covered by the Financial Times, Institutional Investors, Columbia Law School's Blog on Corporations and the Capital Markets, Harvard Law School School Forum on Corporate Governance and Financial Regulation.

Equity pay has been the primary component of managerial compensation packages at US public firms since the early 1990s. Using a comprehensive sample of top executives from 1992-2020, we estimate to what extent they trade firm equity held in their portfolios to neutralize increments in ownership due to annual equity grants. Executives accommodate ownership increases linked to options awards. Conversely, increases in stock holdings linked to option exercises and restricted stock grants are largely neutralized through comparable sales of unrestricted shares. Variation in stock trading responses across executives hardly appears to respond to diversification motives. From a theoretical standpoint, these results challenge (i) the common, generally implicit assumption that managers cannot undo their incentive packages, (ii) the standard modeling practice of treating different equity pay items homogeneously, and (iii) the often taken for granted the crucial role of diversification motives in managers' portfolio choices.

For more information of the seminar, scan the following QR code(s) to join Tencent QQ group (904 544 292) or WeChat group named "IAER Seminar (5)", please.

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(QR code is valid until September 18, 2024)