Equity Vesting and Investment, is co-authored by Alex Edmans, London Business School; Vivian W. Fang, Carlson School of Management at the University of Minnesota; and Katharina A. Lewellen, Tuck School of Business at Dartmouth. This paper studies the link between real investment decisions and CEO’s short-term stock price concerns. It finds that vesting equity induces CEOs to reduce investments in long-term projects and to take actions that increase short-term stock price. More broadly, it shows that that the structure of CEO compensation has a causal effect on real-world decisions. Download the research here.
The second winning paper, The Long-Term Consequences of Short-Term Incentives, is also co-authored by Edmans and Fang, together with Allen H. Huang of the Hong Kong University of Science and Technology. This paper studies two corporate actions that allow accurate measurement of the long-term consequences of short-term incentives – stock repurchases and mergers and acquisitions (M&A). The research shows that the impending vesting of equity may lead CEOs to take myopic actions that boost the short-term stock price at the expense of long-term value. An increase in vesting equity is associated with a greater frequency of stock repurchases and M&A announcements, and both corporate events were associated with higher short-term returns and lower long-term returns. Download the research here.