scholarly journals Option Compensation and Optimism Bias in Management Earnings Forecasts

2019 ◽  
Vol 1 (2) ◽  
pp. 1-23
Author(s):  
Yu-Ho Chi ◽  
David A Ziebart ◽  
Terry Campbell
Keyword(s):  
Empirical Evidence ◽  
Stock Price ◽  
Earnings Forecasts ◽  
Stock Option ◽  
Share Price ◽  
Optimistic Bias ◽  
Management Earnings Forecasts ◽  
Optimism Bias ◽  
Corporate Managers ◽  
Option Compensation

We examine the relation between the option compensation received by corporate managers and the extent of optimistic bias in their earnings forecasts. Specifically, we are interested in the extent to managers with a high amount of option compensation tend to have a self-serving optimism. We examine whether there is evidence consistent with the argument that managers have a self-serving interest to issue optimistic forecasts since their compensation is a function of stock price and higher earnings usually result in a higher share price. We hypothesize that management’ optimism (optimistic bias in their earnings forecasts) increases as their stock option compensation increases. Our empirical evidence indicates that highly compensated managers are associated with the likelihood of issuing upwardly biased (i.e. more optimistic) earnings forecasts.

THE VALUE OF BEING LUCKY: OPTION BACKDATING AND NONDIVERSIFIABLE RISK

2021 ◽  
pp. 2150023
Author(s):  
VICKY HENDERSON ◽  
JIA SUN ◽  
A. ELIZABETH WHALLEY
Keyword(s):  
Risk Aversion ◽  
Stock Prices ◽  
Stock Price ◽  
Stock Option ◽  
Risk Averse ◽  
Executive Stock Option ◽  
Early Exercise ◽  
Lookback Option ◽  
Utility Indifference ◽  
Option Compensation

The practice of executives influencing their option compensation by setting a grant date retrospectively is known as backdating. Since executive stock options are usually granted at-the-money, selecting an advantageous grant date to coincide with a low stock price will be valuable to an executive. Empirical evidence shows that backdating of executive stock option grants was prevalent, particularly at firms with highly volatile stock prices. Executives who have the opportunity to backdate should take this into account in their valuation. We quantify the value to a risk averse executive of a lucky option grant with strike chosen to coincide with the lowest stock price of the month. We show the ex ante gain to risk averse executives from the ability to backdate increases with both risk aversion and with volatility, and is significant in magnitude. Our model involves valuing the embedded partial American lookback option in a utility indifference setting with key features of risk aversion, inability to diversify and early exercise.

scholarly journals Analisis Pengaruh Return On Assets (ROA), Kepemilikan Asing Dan Earning Per Share (EPS) Terhadap Perkembangan Harga Saham

CICES ◽  
2017 ◽  
Vol 3 (1) ◽  
pp. 61-70
Author(s):  
Sri Rahayu ◽  
Christien Setiya Kesumawati ◽  
Chintia Ayu Wulanda
Keyword(s):  
Real Estate ◽  
Empirical Evidence ◽  
Stock Price ◽  
Stock Return ◽  
Stock Exchange ◽  
Foreign Ownership ◽  
Share Price ◽  
Return On Assets ◽  
Independent Variables

This research aimed to get empirical evidence about the influence of roa, foreign ownership and eps to stock return either partially or simultaneously. The study was conducted on 10 companies in real estate and properties listed in Indonesia Stock Exchange period 2010 - 2012. In this study, there are three variables: roa, foreign ownership, and eps as independent variables and the development of the share price as the dependent variable. The results of this study indicate that (1) ROA partially not significantly affect the development of the share price; (2) partial foreign ownership significantly influence the development of the share price; (3) EPS by partial significantly influence the development of the share price; (4) roa, foreign ownership, and eps simultaneously affect the stock price developments.

Prior Forecasting Accuracy and Investor Reaction to Management Earnings Forecasts

2021 ◽  
Author(s):  
Amy Hutton ◽  
Phillip C Stocken
Keyword(s):  
Stock Price ◽  
Forecast Accuracy ◽  
Earnings Forecasts ◽  
Bad News ◽  
Market Forces ◽  
Management Earnings Forecasts ◽  
Forecasting Accuracy ◽  
Price Response ◽  
Management Forecast ◽  
Investor Reaction

We examine the properties of firms’ forecasting records and whether the accuracy of their prior earnings forecasts affects investor response to their subsequent forecasts. Within the context of a Bayesian model of investor learning, we find that the stock price response to management forecast news is increasing in prior forecast accuracy and also in the length of a firm’s forecasting record. Further, we document that investors are more responsive to extreme good and bad news forecasts when a firm has an established forecasting record. Overall, these results suggest that a firm’s prior forecasting behavior allows it to establish a forecasting reputation, and that market forces encourage accurate forecasting as firms benefit from having a reputation for forecasting accurately.

Credibility of Management Forecasts

2005 ◽  
Vol 80 (4) ◽  
pp. 1233-1260 ◽  
Author(s):  
Jonathan L. Rogers ◽  
Phillip C. Stocken
Keyword(s):  
Insider Trading ◽  
Financial Distress ◽  
Stock Price ◽  
Earnings Forecasts ◽  
Industry Concentration ◽  
Management Forecasts ◽  
Management Earnings Forecasts ◽  
Forecast Bias ◽  
Price Response ◽  
Trading Activities

We examine how the market's ability to assess the truthfulness of management earnings forecasts affects how managers bias their forecasts, and we evaluate whether the market's response to management forecasts is consistent with it identifying predictable forecast bias. We find managers' willingness to misrepresent their forwardlooking information as a function of their incentives varies with the market's ability to detect misrepresentation. We examine incentives induced by the litigation environment, insider trading activities, firm financial distress, and industry concentration. With regard to the stock price response to forecasts, we find the market varies its response with the predictable bias in the forecast. The efficiency of the market's response, however, varies with the forecast news.

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