Executive equity incentives and opportunistic manager behavior: new evidence from a quasi-natural experiment

Abstract This study provides plausible causal evidence on the effect of executive equity incentives opportunistic manager behavior. I exploit a unique setting created by introduction Financial Accounting Standard (FAS) 123R in 2005, which led to an exogenous increase cost option pay, causing substantial decline pay for some firms while leaving others largely unaffected. Using difference-in-differences analyses with treatment group that show and two control groups, find likelihood firm meeting or beating analyst forecasts decreases 14–20%. The results relatively high levels meet-or-beat before FAS were driven real activities manipulation such as abnormal asset sales beat analysts’ benchmarks, accrual management less relevant. Together, suggest encourage actions meet earnings expectations, expectations.