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Ceo Equity Portfolio Incentives And Layoff Decisions

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  • Jeffrey T. Brookman
  • Saeyoung Chang
  • Craig G. Rennie

Abstract

CEOs with higher equity‐based compensation are widely believed to be more likely to act in shareholders' interests. Unlike less common acquisitions, voluntary liquidations, or seasoned equity offerings, layoffs are comparatively common elements of firms' operating strategies. We find that CEOs with at least one year of tenure who possess greater incentives from portfolios of restricted stock and stock option grants are more likely to announce layoffs, and that these layoffs create shareholder value. We conclude that accumulated portfolios of restricted stock and stock option grants encourage CEOs to adopt operating strategies that improve operating profits and stock performance.

Suggested Citation

  • Jeffrey T. Brookman & Saeyoung Chang & Craig G. Rennie, 2007. "Ceo Equity Portfolio Incentives And Layoff Decisions," Journal of Financial Research, Southern Finance Association;Southwestern Finance Association, vol. 30(2), pages 259-281, June.
    • Handle: RePEc:bla:jfnres:v:30:y:2007:i:2:p:259-281
    DOI: 10.1111/j.1475-6803.2007.00213.x
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    Cited by:

    1. Carola Frydman & Dirk Jenter, 2010. "CEO Compensation," Annual Review of Financial Economics, Annual Reviews, vol. 2(1), pages 75-102, December.
    2. Sanghyun Lee & Sounman Hong & Bong Gyou Lee, 2023. "Is There a Right Way to Lay Off Employees in Times of Crisis?: The Role of Organizational Justice in the Case of Airbnb," Sustainability, MDPI, vol. 15(5), pages 1-16, March.
    3. C. Lakshman & Aarti Ramaswami & Ruth Alas & Jean Kabongo & J. Rajendran Pandian, 2014. "Ethics Trumps Culture? A Cross-National Study of Business Leader Responsibility for Downsizing and CSR Perceptions," Journal of Business Ethics, Springer, vol. 125(1), pages 101-119, November.
    4. Berninger, Marc & Gärtner, Henrik & Schiereck, Dirk, 2018. "Kapitalmarktreaktionen auf die Ankündigung von Personalabbauplänen – ein Überblick über drei Jahrzehnte empirische Evidenz," Die Unternehmung - Swiss Journal of Business Research and Practice, Nomos Verlagsgesellschaft mbH & Co. KG, vol. 72(4), pages 289-325.
    5. Matolcsy, Zoltan & Shan, Yaowen & Seethamraju, Vinay, 2012. "The timing of changes in CEO compensation from cash bonus to equity-based compensation: Determinants and performance consequences," Journal of Contemporary Accounting and Economics, Elsevier, vol. 8(2), pages 78-91.
    6. Mariano González-Sánchez & Eva M. Ibáñez Jiménez & Ana I. Segovia San Juan, 2021. "Board of Directors’ Remuneration, Employee Costs, and Layoffs: Evidence from Spain," Sustainability, MDPI, vol. 13(14), pages 1-10, July.
    7. Lakshman Chandrashekhar & Linh Chi Vo & Rani S. Ladha, 2015. "Equity Portfolio Incentives to CEOs for Downsizing: Differential impacts on survivors vs. victims in three countries," Working papers 169, Indian Institute of Management Kozhikode.

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