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CEO incentive compensation and stock liquidity

Author

Listed:
  • Hongrui Feng

    (Penn State Behrend)

  • Shu Yan

    (Oklahoma State University)

Abstract

We document that the CEO pay-for-performance incentive positively predicts firm’s stock liquidity. The evidence is consistent with the hypothesis that, to mitigate their undiversified price risk and reduce the transaction costs, CEOs with high pay-for-performance incentive compensations exert extra efforts in shaping firms’ information environment to improve stock liquidity. We further identify three internal and two external channels through which incentivized CEOs stimulate firms’ stock liquidity. Specifically, we find that firms with highly incentivized CEOs tend to provide earnings guidance, file more readable 10-K reports, and perform more stock splits. In addition, these firms attract larger analyst following and have lower earnings forecast dispersions.

Suggested Citation

  • Hongrui Feng & Shu Yan, 2019. "CEO incentive compensation and stock liquidity," Review of Quantitative Finance and Accounting, Springer, vol. 53(4), pages 1069-1098, November.
    • Handle: RePEc:kap:rqfnac:v:53:y:2019:i:4:d:10.1007_s11156-018-0775-9
    DOI: 10.1007/s11156-018-0775-9
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    Cited by:

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    3. Brian Boscaljon & Hongrui Feng & Yuecheng Jia & Qian Sun, 2021. "Government customers, institutional investment horizons, and liquidity risk," Review of Quantitative Finance and Accounting, Springer, vol. 56(1), pages 273-296, January.
    4. Tom Berglund, 2020. "Liquidity and Corporate Governance," JRFM, MDPI, vol. 13(3), pages 1-9, March.
    5. Cheng Jiang & Kose John & David Larsen, 2021. "R&D investment intensity and jump volatility of stock price," Review of Quantitative Finance and Accounting, Springer, vol. 57(1), pages 235-277, July.
    6. Huang, Can & Huang, Hung-Yi & Ho, Kung-Cheng, 2024. "Media coverage and stock liquidity: Evidence from China," International Review of Economics & Finance, Elsevier, vol. 89(PA), pages 665-682.
    7. Murad Antia & Christos Pantzalis & Jung Chul Park, 2021. "Does CEO myopia impede growth opportunities?," Review of Quantitative Finance and Accounting, Springer, vol. 56(4), pages 1503-1535, May.

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    More about this item

    Keywords

    CEO incentive compensation; Stock liquidity; 10-K reports; Stock split; Earnings management;
    All these keywords.

    JEL classification:

    • G12 - Financial Economics - - General Financial Markets - - - Asset Pricing; Trading Volume; Bond Interest Rates
    • G32 - Financial Economics - - Corporate Finance and Governance - - - Financing Policy; Financial Risk and Risk Management; Capital and Ownership Structure; Value of Firms; Goodwill
    • J33 - Labor and Demographic Economics - - Wages, Compensation, and Labor Costs - - - Compensation Packages; Payment Methods

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