Managerial Incentives for Attracting Attention
52 Pages Posted: 12 Oct 2017
Date Written: October 12, 2017
Abstract
This paper studies the mechanisms which motivate and allow managers to engage in cheap talk and attract market’s attention in a credible way. We consider stock split announcements, voluntary earnings forecasts and press releases issued by firms to the media as proxies for managerial cheap talk. Using a sample of 3,332 US firms for the 1992-2011 period, we show that: (i) managerial performance-related pay contracts incentivize executives to attract attention; (ii) analysts increase their coverage of firms following the use of the aforementioned proxies of cheap talk; (iii) chief executive officers get punished for attracting attention when market prices do not increase following cheap talk.
Keywords: Voluntary Disclosures, Attracting Attention, Cheap Talk, CEO Compensation
JEL Classification: G30, G32, G34
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