CEO incentive compensation and stock price momentum

Jian Wang, Yanhuang Huang, Hongrui Feng, Xingjian Li, Shu Yan

Research output: Contribution to journalArticlepeer-review

Abstract

We document strong evidence that CEO incentive compensation can predict the significance of stock price momentum through discretionary accrual and real activities manipulation. The profit of momentum strategy increases with CEO pay-for-performance incentive, but decreases with CEO risk-taking incentive. It also evaluates the effects of information uncertainty on such relationship. The evidence is more significant for firms with older and longer tenured CEOs and firms with more informed traders. The relationship between the profit of momentum strategy and CEO pay-for-performance incentive is stronger among CEOs without the risk-taking incentive. Our results are robust for different sub-samples based on before and after Reg FD and Sarbanes–Oxley Act, even after controlling for the potential endogeneity. Further, our findings are consistent with the information diffusion explanation of momentum and the agency theory that incentivised CEOs tend to manipulate information by smoothing good news, concealing mildly bad news and accelerating the disclosure of extremely bad news.

Original languageEnglish (US)
Pages (from-to)975-1028
Number of pages54
JournalAccounting and Finance
Volume63
Issue numberS1
DOIs
StatePublished - Apr 2023

All Science Journal Classification (ASJC) codes

  • Accounting
  • Finance
  • Economics, Econometrics and Finance (miscellaneous)

Fingerprint

Dive into the research topics of 'CEO incentive compensation and stock price momentum'. Together they form a unique fingerprint.

Cite this