Gaming the Float: How Managers Respond to EPS-based Incentives

Figure 3: Median Shares Outstanding across Net Income Volatility and Incentive Compensation Deciles
This figure presents median shares outstanding (bar chart) and median net income (line-plot) across deciles sorted
on Net Income Volatility (Panel A) and Incentive Compensation (Panel B). Shares outstanding are adjusted for net
income by first sorting the sample firms into 20 groups based on net income each quarter, and then sorting into deciles
based on Net Income Volatility or Incentive Compensation. Net Income Volatility is the standard deviation of the
previous 12 quarters of net income. Incentive Compensation is calculated as 1-(Salary/TDC1). Shares outstanding
is represented on the left axis and net income is on the right axis. The sample period is 1984-2011.
Panel A. Shares Outstanding across Net Income Volatility Deciles
Shares Outstanding
40,000
35,000
30,000
25,000
20,000
15,000
10,000
5,000
0
Bottom Net
Income Volatility
Decile
2 3 4 5 6 7 8 9
Net Income
5
Top Net Income
Volatility
Decile
4
3
2
1
0
Shares Outstanding
Net Income
Panel B. Shares Outstanding across Incentive Compensation Deciles
Shares Outstanding
80,000
70,000
60,000
50,000
40,000
30,000
20,000
Bottom
Incentive
Comp Decile
2 3 4 5 6 7 8 9
Net Income
50
40
30
20
10
0
Top
Incentive
Comp Decile
Shares Outstanding
Net Income
35