Signaling Before the Deadline : Management Earnings Forecasts before the Performance Shares Award Evaluation Date

We find that CEOs issue significantly more favorable management earnings forecasts (MEFs), relative to the prevailing analyst consensus, to boost stock prices when approaching performance evaluation end dates. The effect is more pronounced for firms with lower past stock returns and when award value is higher. However, we find that these forecasted earnings are lower than actual earnings, implying that CEOs do not issue MEFs optimistically to mislead investors. Overall, we show that the performance-based shares granting scheme improves the efficiency of executives’ compensation contracts, a piece of novel evidence that has important implications for the executive compensation contract design