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Effects of Overvalued Equity and Managerial Incentives on Corporate Policy

Author

Listed:
  • Ching-Chieh Tsai
  • Chi-Cheng Wu
  • Ruey-Dang Chang

Abstract

This paper examines the relationship between overvalued equity, managerial incentives, and corporate policy for firms listed on the Taiwan Stock Exchange. The empirical evidence reveals that firms with higher overvalued equity opt for higher leverage and hold less cash, and the sensitivity of managerial total wealth to the stock price and stock option holdings incentives induce inadequately diversified risk-averse managers to adopt lower leverage and hold more cash. By contrast, higher overvalued equity, the sensitivity of managerial total wealth to the stock price, and stock option holdings incentives induce managers to engage in earnings manipulation.

Suggested Citation

  • Ching-Chieh Tsai & Chi-Cheng Wu & Ruey-Dang Chang, 2012. "Effects of Overvalued Equity and Managerial Incentives on Corporate Policy," Emerging Markets Finance and Trade, Taylor & Francis Journals, vol. 48(0), pages 74-87, January.
    • Handle: RePEc:mes:emfitr:v:48:y:2012:i:0:p:74-87
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