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Title: Stock liquidity and managerial short-termism
Authors: Chen, Y 
Rhee, SG
Veeraraghavan, M
Zolotoy, L
Keywords: Corporate governance
Cost of capital
Earnings management
Managerial short-termism
Stock liquidity
Issue Date: 2015
Publisher: Elsevier
Source: Journal of banking and finance, 2015, v. 60, p. 44-59 How to cite?
Journal: Journal of banking and finance 
Abstract: We examine whether stock liquidity exacerbates or mitigates managerial short-termism. Utilizing earnings management as a proxy for managerial short-termism, we establish three major findings. First, firms with liquid stocks engage in less accrual-based and real earnings management. Second, the effect of stock liquidity on earnings management is amplified for firms with high levels of managerial pay-for-performance sensitivity. Third, the positive association between the intensity of earnings management and firm cost of capital is evident only for firms with low stock liquidity. Our findings are consistent with the threat of blockholder exit as the main governance channel through which stock liquidity discourages opportunistic earnings management and mitigates managerial short-termism.
ISSN: 0378-4266
EISSN: 1872-6372
DOI: 10.1016/j.jbankfin.2015.07.007
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