The Long-Term Consequences of Short-Term Incentives

The Long-Term Consequences of Short-Term Incentives

Alex Edmans, Vivian W. Fang, Allen H. Huang

Series number :

Serial Number: 

Date posted :

October 28 2017

Last revised :

June 02 2021
SSRN Share


  • Repurchases • 
  • M&A • 
  • short-termism • 
  • CEO Incentives • 
  • managerial myopia

This paper studies the long-term consequences of actions induced by vesting equity, a measure of short-term concerns. Vesting equity is positively associated with the probability of a firm repurchasing shares, the amount of shares repurchased, and the probability of the firm announcing a merger or acquisition (M&A).

However, it is also associated with more negative long-term returns over the 2-3 years following repurchases and 4 years following M&A, as well as future M&A goodwill impairment. These results are inconsistent with CEOs buying underpriced stock or companies to maximize long-run shareholder value, but consistent with these actions being used to boost the short-term stock price and thus equity sale proceeds. CEOs sell their own stock shortly after using company money to buy the firm’s stock, also inconsistent with repurchases being motivated by undervaluation.

Published in

Published in: 
Investor Responsibility Research Center (IRRC) Institute Research Award, 2017 International Centre for Pension Management Research Award, 2018


Real name:
Allen H. Huang
Real name:
Vivian W. Fang