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  • Stock liquidity and managerial short-termism

    Author(s)
    Chen, Yangyang
    Rhee, S. Ghon
    Veeraraghavan, Madhu
    Zolotoy, Leon
    Griffith University Author(s)
    Veeraraghavan, Madhu
    Year published
    2015
    Metadata
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    Abstract
    We examine whether stock liquidity exacerbates or mitigates managerial short-termism. Utilizing earnings management as a proxy for managerial short-termism, we establish three major findings. First, firms with liquid stocks engage in less accrual-based and real earnings management. Second, the effect of stock liquidity on earnings management is amplified for firms with high levels of managerial pay-for-performance sensitivity. Third, the positive association between the intensity of earnings management and firm cost of capital is evident only for firms with low stock liquidity. Our findings are consistent with the threat of ...
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    We examine whether stock liquidity exacerbates or mitigates managerial short-termism. Utilizing earnings management as a proxy for managerial short-termism, we establish three major findings. First, firms with liquid stocks engage in less accrual-based and real earnings management. Second, the effect of stock liquidity on earnings management is amplified for firms with high levels of managerial pay-for-performance sensitivity. Third, the positive association between the intensity of earnings management and firm cost of capital is evident only for firms with low stock liquidity. Our findings are consistent with the threat of blockholder exit as the main governance channel through which stock liquidity discourages opportunistic earnings management and mitigates managerial short-termism.
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    Journal Title
    Journal of Banking and Finance
    Volume
    60
    DOI
    https://doi.org/10.1016/j.jbankfin.2015.07.007
    Subject
    Banking, Finance and Investment not elsewhere classified
    Applied Mathematics
    Economic Theory
    Banking, Finance and Investment
    Publication URI
    http://hdl.handle.net/10072/172405
    Collection
    • Journal articles

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