Gatton Professor's Paper on CEO Equity Incentives, Institutional Ownership to be Published
LEXINGTON, Ky. (Oct. 27, 2016) — A research paper by Brian Bratten, University of Kentucky Gatton College of Business and Economics associate professor of accountancy, was recently accepted for publication in the Journal of Management Accounting Research. His paper titled "Institutional Ownership and CEO Equity Incentives" displays new evidence on the relation between CEO's equity incentives and institutional ownership.
Bratten's research demonstrates that when firms’ CEOs have abnormally low or abnormally high equity incentives, firms experience lower future performance. In response to this, firms with higher ownership by institutional investors take actions both to increase CEO’s equity incentives when they are too low, and to decrease them when they are too high. Firms with more institutional monitoring respond to abnormally high equity incentives by reducing CEO’s annual stock option grants and by substituting equity-based compensation for cash compensation.
Bratten notes that it is important to document the effect of equity incentives on performance is not strictly positive. Previous research on the topic has assumed a strictly positive association between equity incentives and institutional ownership, and recent guidelines encourage increasing equity incentives to align CEOs' interests with shareholders' interests. However, Bratten's research results suggest that continued attempts to increase equity incentives may result in equity incentives being too high.
Brian Bratten holds the Clark Material Handling Company Endowment for Faculty Excellence Fellowship in the Gatton College of Business and Economics. Bratten received a doctoral degree in accounting from the University of Texas at Austin as well as a bachelor's degree in accounting and a master's degree in finance from Texas A&M University. He joined Gatton College's faculty in 2009 where he continues to focus his research on financial accounting and auditing topics. He has been published in many journals including The Accounting Review; Contemporary Accounting Research; Review of Accounting Studies; Accounting, Organizations and Society; AUDITING: A Journal of Practice and Theory; and now the Journal of Management Accounting Research.
The Journal of Management Accounting Research is committed to improving the theory and practice of management accounting. The journal focuses on the promotion of high quality applied and theoretical research. The target audience of the journal include members of the Management Account Section of the American Accounting Association as well as those interested in management accounting.
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