Abstract
In this research I find that stock market participants react differently to firms’ voluntary announcements depending on the credibility they lend to the announcing managers. Using a sample of 762 earnings forecasts for the period of 2002-2010 I study intraday trading behavior around the forecast announcements. The results indicate that investors take into account the term-structure of managerial incentives when they trade on the announced forecasts. In particular, I find that positive forecast surprises by the managers with larger short-term equity-based compensation are treated as less credible by investors and they sell. Furthermore, the results also show that the biggest source of market’s mistrust comes from short-term option grants. The opposite is true for the announcements by the CEOs with larger long-term equity-based compensation i.e. investors buy abnormally more following positive earnings forecasts, specifically when the announcing CEO incentives contain larger long-term stock grants.
Sign-in/Register to access full text options 
Talk to us
Join us for a 30 min session where you can share your feedback and ask us any queries you have
Schedule a callDisclaimer: All third-party content on this website/platform is and will remain the property of their respective owners and is provided on "as is" basis without any warranties, express or implied. Use of third-party content does not indicate any affiliation, sponsorship with or endorsement by them. Any references to third-party content is to identify the corresponding services and shall be considered fair use under The CopyrightLaw.
