TY - JOUR
T1 - Managerial incentives and stock price dynamics
T2 - an experimental approach
AU - Bao, Te
AU - Halim, Edward
AU - Noussair, Charles N.
AU - Riyanto, Yohanes E.
N1 - Funding Information:
Riyanto would like to acknowledge the Ministry of Education of Singapore Grants (AcRF MOE Tier 1). Bao thanks the financial support from Tier 1 Grant from MOE of Singapore (RG69/16), NTU-WeBank JRC (NWJ-2019-001 and NWJ-2020-003) and National Science Foundation of China (No. 71803201, No. 71773013, and No. 71873149). We thank Eric Aldrich, John Duffy, Nobuyuki Hanaki, Rosemarie Nagel, Tibor Neugebauer, Luba Petersen, Yi Tang, Utz Weitzel, three anonymous referees, and participants at the 2016 Experimental Finance Conference in Nijmegen, The Netherlands, the 2016 North American Meeting of the Economic Science Association at the University of Arizona, Tucson, USA, the 2017 Experimental Finance Conference in Nice, France, the 2018 Asian Meeting of the Econometric Society in Shanghai, China, the 2018 Research in Behavioral Finance Conference at Amsterdam, the Netherlands, the 2018 Society for Computational Economics Annual Meeting at Milan, Italy, the 2019 Allied Social Sciences Association meeting at Atlanta, USA, the 2019 Experimental Social Science Conference at Tokyo, Japan and the International Workshop on Experimental Economics at Osaka, Japan for helpful comments.
Funding Information:
Riyanto would like to acknowledge the Ministry of Education of Singapore Grants (AcRF MOE Tier 1). Bao thanks the financial support from Tier 1 Grant from MOE of Singapore (RG69/19), NTU-WeBank JRC (NWJ-2019-001 and NWJ-2020-003) and National Science Foundation of China (No. 71803201, No. 71773013, and No. 71873149). We thank Eric Aldrich, John Duffy, Nobuyuki Hanaki, Rosemarie Nagel, Tibor Neugebauer, Luba Petersen, Yi Tang, Utz Weitzel, three anonymous referees, and participants at the 2016 Experimental Finance Conference in Nijmegen, The Netherlands, the 2016 North American Meeting of the Economic Science Association at the University of Arizona, Tucson, USA, the 2017 Experimental Finance Conference in Nice, France, the 2018 Asian Meeting of the Econometric Society in Shanghai, China, the 2018 Research in Behavioral Finance Conference at Amsterdam, the Netherlands, the 2018 Society for Computational Economics Annual Meeting at Milan, Italy, the 2019 Allied Social Sciences Association meeting at Atlanta, USA, the 2019 Experimental Social Science Conference at Tokyo, Japan and the International Workshop on Experimental Economics at Osaka, Japan for helpful comments.
Publisher Copyright:
© 2021, Economic Science Association.
PY - 2021/6
Y1 - 2021/6
N2 - We investigate experimentally how granting a manager stock ownership and the opportunity to trade shares of a company’s stock influence the manager’s effort and the overall behavior of the market for the company’s shares. In our design, managerial effort affects the fundamental value of the firm. Our findings suggest that endowing a manager with stock does not significantly increase the manager’s effort. When the manager is allowed to trade the company’s shares, however, she tends to accumulate additional shares, increase her effort, and raise company value. In all of our treatments, prices tend to reflect underlying fundamentals, and bubbles are rare.
AB - We investigate experimentally how granting a manager stock ownership and the opportunity to trade shares of a company’s stock influence the manager’s effort and the overall behavior of the market for the company’s shares. In our design, managerial effort affects the fundamental value of the firm. Our findings suggest that endowing a manager with stock does not significantly increase the manager’s effort. When the manager is allowed to trade the company’s shares, however, she tends to accumulate additional shares, increase her effort, and raise company value. In all of our treatments, prices tend to reflect underlying fundamentals, and bubbles are rare.
KW - Agency problem
KW - Asset bubbles
KW - Experimental finance
KW - Managerial incentives
KW - Stock-based compensation
UR - http://www.scopus.com/inward/record.url?scp=85090787038&partnerID=8YFLogxK
UR - http://www.scopus.com/inward/citedby.url?scp=85090787038&partnerID=8YFLogxK
U2 - 10.1007/s10683-020-09675-7
DO - 10.1007/s10683-020-09675-7
M3 - Article
AN - SCOPUS:85090787038
SN - 1386-4157
VL - 24
SP - 617
EP - 648
JO - Experimental Economics
JF - Experimental Economics
IS - 2
ER -