publication . Article . 2007

Executive pay and shareholder litigation*

Lin Peng; Ailsa Röell;
Open Access
  • Published: 31 Jan 2007 Journal: Review of Finance, volume 12, issue 1, pages 141-184
Abstract
The paper examines the impact of executive compensation on private securities litigation. We find that incentive pay in the form of options increases the probability of securities class action litigation, holding constant a wide range of firm characteristics. We further document that there is abnormal upward earnings manipulation during litigation class periods and that insiders exercise more options and sell more shares during class periods, but that this activity is largely driven by pre-existing option holdings of the managers. Our results suggest that option-based compensation may have the unintended side effect of giving executives an incentive to focus exc...
Subjects
free text keywords: Finance, Shareholder, Economics, business.industry, business, Incentive, Executive compensation, Financial economics, Class action, Share price, Earnings
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publication . Article . 2007

Executive pay and shareholder litigation*

Lin Peng; Ailsa Röell;