IDEAS home Printed from https://ideas.repec.org/a/ucp/jnlbus/v78y2005i5p1859-1890.html
   My bibliography  Save this article

Executive Compensation Structure and Corporate Equity Financing Decisions

Author

Listed:
  • Sudip Datta

    (Wayne State University)

  • Mai Iskandar-Datta

    (Wayne State University)

  • Kartik Raman

    (Bentley College)

Abstract

Extending Myers and Majluf's (1984) model, we propose the market response to seasoned equity offering (SEO) announcements depends on the alignment of goals of managers and existing shareholders. We document a negative relation between the stock-market response to SEO announcements and issuing firm managers' equity-based compensation (EC). Relative to low-EC managers, the market perceives high-EC managers as issuing more-overvalued equity, benefiting existing shareholders and exacerbating the adverse selection problem for potential shareholders. We find EC and the market reaction to SEOs varies cross-sectionally with information asymmetry, investment opportunities, preissue stock-price run-up, and managerial ownership.

Suggested Citation

  • Sudip Datta & Mai Iskandar-Datta & Kartik Raman, 2005. "Executive Compensation Structure and Corporate Equity Financing Decisions," The Journal of Business, University of Chicago Press, vol. 78(5), pages 1859-1890, September.
    • Handle: RePEc:ucp:jnlbus:v:78:y:2005:i:5:p:1859-1890
    DOI: 10.1086/431445
    as

    Download full text from publisher

    File URL: http://dx.doi.org/10.1086/431445
    File Function: main text
    Download Restriction: Access to the online full text or PDF requires a subscription.
    File URL: https://libkey.io/10.1086/431445?utm_source=ideas
    LibKey link: if access is restricted and if your library uses this service, LibKey will redirect you to where you can use your library subscription to access this item
    ---><---

    As the access to this document is restricted, you may want to search for a different version of it.

    Citations

    Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
    as


    Cited by:

    1. Yi-Mien Lin & Shwu-Jen You & Fung-Jiao Lin, 2008. "The Effects of Pre-issue Information Releases on Seasoned Equity Offerings," Journal of Business Finance & Accounting, Wiley Blackwell, vol. 35(9-10), pages 1138-1163.
    2. Xu, Pisun (Tracy), 2013. "Managerial incentives and a firm's cash flow sensitivities," International Review of Economics & Finance, Elsevier, vol. 27(C), pages 80-96.
    3. Brisker, Eric R. & Autore, Don M. & Colak, Gonul & Peterson, David R., 2014. "Executive compensation structure and the motivations for seasoned equity offerings," Journal of Banking & Finance, Elsevier, vol. 40(C), pages 330-345.
    4. Cline, Brandon N. & Garner, Jacqueline L. & Yore, Adam S., 2014. "Exploitation of the internal capital market and the avoidance of outside monitoring," Journal of Corporate Finance, Elsevier, vol. 25(C), pages 234-250.
    5. Cui, Huijie & Chi-Moon Leung, Sidney, 2020. "The long-run performance of acquiring firms in mergers and acquisitions: Does managerial ability matter?," Journal of Contemporary Accounting and Economics, Elsevier, vol. 16(1).
    6. Huaibing Yu, 2019. "How Does CEO Equity-based Compensation Affect Firm’s Propensity of Issuing New Securities?," Journal of Applied Finance & Banking, SCIENPRESS Ltd, vol. 9(4), pages 1-6.
    7. Yi‐Mien Lin & Shwu‐Jen You & Fung‐Jiao Lin, 2008. "The Effects of Pre‐issue Information Releases on Seasoned Equity Offerings," Journal of Business Finance & Accounting, Wiley Blackwell, vol. 35(9‐10), pages 1138-1163, November.
    8. He, Yan & Wang, Junbo & John Wei, K.C., 2014. "A comprehensive study of liquidity before and after SEOs and SEO underpricing," Journal of Financial Markets, Elsevier, vol. 20(C), pages 61-78.

    More about this item

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:ucp:jnlbus:v:78:y:2005:i:5:p:1859-1890. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    We have no bibliographic references for this item. You can help adding them by using this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Journals Division (email available below). General contact details of provider: https://www.jstor.org/journal/jbusiness .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.