Abstract
We show that stock-based CEO compensation can create a race to the bottom among firms that escalates short-termist pressure. More informative stock prices reduce the agency cost of using stock-based compensation to incentivize managers. Also, shortening a firm's project maturity improves stock price informativeness by attracting informed investors, who prefer to invest in short-term assets. However, when informed trading is a scarce resource, this is a prisoners' dilemma game: competition for informed investors creates excessive that destroys shareholder value, while in equilibrium, price informativeness stays the same. More intense competition between firms sharpens incentives to shorten project maturity, deepening the short-termism trap.
Sign-in/Register to access full text options 
Free) 
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 call
