The Effect of Managerial Short‐Termism on Corporate Investment

We show that executives with more short-term incentives spend less on long-term investment. We examine a unique event in which hundreds of firms eliminated option vesting periods to avoid an accounting expense under FAS 123-R. This allowed executives to exercise options earlier and to profit from boosting short-term performance. Our identification exploits that FAS 123-R's timing was staggered almost randomly by firms' fiscal year ends. CEOs...