Ever wondered why CEOs love to hold a large chunk of equity of the companies that they run? Researchers Christopher S Armstrong, John E Core, Wayne R Guay observe that CEOs tend to hold more equity when they are more risk-tolerant and enjoy more power. There is little evidence to show that it is over-confidence or inside trading that is the reason for their huge holding. In fact, the study states that CEOs hold more equity than one would expect given the magnitude of the risk premium in their pay. The average CEO receives a pay premium for holding a substantial portion of this equity, suggesting that what might at first appear to be unconstrained equity, may in fact, be implicitly required by the board for incentive contacting purposes.
Title: Why Do CEOs Hold So Much Unconstrained Equity?
Source: Social Science Research Network
It Doesn’t Ad(d) Up
If you thought outdoor advertising is the way to go to influence your firm’s short-term returns, you might want to read this report. Researchers Florens Focke, Stefan Ruenzi and Michael Ungeheuer challenge the view that a firm can influence or artificially increase stock prices through advertising. Information from the Wikipedia pages of firms in the US and their advertising and financial data shows that advertising significantly increases non-news-driven investor attention, but these are not economically significant. The report finds no impact of advertising on short-term stock returns.
Title: Advertising, Attention, and Financial Markets
Source: Social Science Research Network
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