Shifting Corporate Culture: Executive Stock Ownership Plan Adoptions and Incentives to Meet or Just Beat Analysts’ Expectations

Posted: 23 Dec 2014 Last revised: 17 Jul 2019

See all articles by Phillip J. Quinn

Phillip J. Quinn

University of Washington - Foster School of Business

Date Written: March 23, 2018

Abstract

This paper investigates whether adoptions of executive stock ownership plans coincide with decreased incentives to meet or just beat analysts’ near-term EPS forecasts. Firms often assert that ownership plans focus executives on long-term performance. I find that the impact of these adoptions on meeting or just beating analysts’ EPS forecasts differs depending on whether the plan binds the CEO to reach ownership targets by a specified date. In particular, I find that firms that adopt plans requiring an increase in CEO ownership exhibit a lower propensity to meet or just beat earnings forecasts following plan adoptions. In contrast, firms that adopt plans that require no increase exhibit no change in the propensity to meet or just beat. The results suggest that firms use binding ownership plans to shift executives’ focus from near-term earnings benchmarks to long-term value creation.

Keywords: corporate culture; analyst forecasts; managerial ownership; benchmark beating; corporate governance

JEL Classification: D22, G32, G34, M41

Suggested Citation

Quinn, Phillip J., Shifting Corporate Culture: Executive Stock Ownership Plan Adoptions and Incentives to Meet or Just Beat Analysts’ Expectations (March 23, 2018). Review of Accounting Studies, Forthcoming, Available at SSRN: https://ssrn.com/abstract=2541380 or http://dx.doi.org/10.2139/ssrn.2541380

Phillip J. Quinn (Contact Author)

University of Washington - Foster School of Business ( email )

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