CEO EQUITY PORTFOLIO INCENTIVES AND LAYOFF DECISIONS

CEOs with higher equity-based compensation are widely believed to be more likely to act in shareholders' interests. Unlike less common acquisitions, voluntary liquidations, or seasoned equity offerings, layoffs are comparatively common elements of firms' operating strategies. We find that CEOs with at least one year of tenure who possess greater incentives from portfolios of restricted stock and stock option grants are more likely to announce layoffs, and that these layoffs create shareholder value. We conclude that accumulated portfolios of restricted stock and stock option grants encourage CEOs to adopt operating strategies that improve operating profits and stock performance. 2007 The Southern Finance Association and the Southwestern Finance Association.