Investor horizon and CEO horizon incentives

Brian Cadman, Jayanthi Sunder

Research output: Contribution to journalArticlepeer-review

32 Scopus citations


We examine the relation between shareholder investment horizon and chief executive officer (CEO) horizon incentives derived from compensation contracts. We find that influential incumbent shareholders provide managers with short-horizon incentives to maximize current firm value when these shareholders plan to sell their stock. Specifically, we use the initial public offering (IPO) setting in which venture capitalists (VCs) represent short-horizon, controlling investors with strong selling incentives after the IPO. We predict and find that VCs' short-term incentives influence CEO's annual horizon incentives following the IPO. At the same time, institutional monitoring limits the influence of VCs on annual, short-horizon incentives. To preempt this disciplining by market participants, VCs grant equity prior to the IPO that correspond with their short-horizons and result in shorter portfolio horizon incentives for the CEO after the IPO. We also document a positive relation between long-run abnormal stock returns and horizon incentives, consistent with horizon incentives influencing management actions.

Original languageEnglish (US)
Pages (from-to)1299-1328
Number of pages30
JournalAccounting Review
Issue number4
StatePublished - Jul 1 2014


  • Equity incentives
  • Executive compensation
  • Governance
  • Venture capital

ASJC Scopus subject areas

  • Accounting
  • Finance
  • Economics and Econometrics


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