Managers whose equity-based incentives vest over a shorter time horizon appear to adopt strategies that reduce information environment quality and exacerbate information heterogeneity across investors. Firms with shorter-horizon managerial incentives are more likely to inflate reported earnings...

Do managerial incentive horizons have capital market consequences? We find that they do when short-sale constraints are more binding. Firms experience significant stock price inflation when their CEOs have short horizon incentives. The short-horizon CEOs sell more shares at inflated prices and...

The value of corporate cash holdings has increased significantly in recent decades. On average, one dollar of cash is valued at $0.61 in the 1980s, $1.04 in the 1990s, and $1.12 in the 2000s. This increase is predominantly driven by the investment opportunity set and cash-flow volatility, as...

Agency theory suggests that governance matters more among firms with greater potential agency costs. Rational investors are unlikely to value safeguards against unlikely events. Yet, few studies of the relation between governance and firm value control for investor perceptions of the likelihood...

Consistent with Jensen's (2005) agency-costs-of-overvalued-equity prediction, we find that overvaluation is statistically and economically related to subsequent income-increasing earnings management. This relation is robust to a series of tests that address potential endogeneity concerns,...

We construct a model to illustrate the dynamics of cash flow volatility and firm valuation. As a firm progressively invests into its growth opportunities, its book value increases and catches up with its market value, reducing the valuation multiple (Q). Cash flow volatility (CFV) decreases due...

Some languages encode future timing more ambiguously than others. We identify two economic channels through which more ambiguous reference to future timing leads to higher levels of R&D investment. Our empirical tests on country- and firm-level R&D investment confirm this prediction, even after...

We construct a model to show that predatory strategies by a financially strong rival can cause a financially weak firm to underinvest. This threat intensifies when the two firms produce similar products and share similar future investment opportunities. We show that cash holdings become more...

Firm value and operating performance are positively related to managerial incentives from both vested and unvested stock and option holdings. The effects of incentives on firm value and operating performance are significantly larger for unvested stock and options than for vested ones, however,...

Cash holdings and bank credit lines are the main sources of corporate liquidity. Similar to the prediction for cash holdings, theory predicts that when facing more intense product market competition, a firm should use more credit lines. The liquidity provided by a credit line allows a firm to...