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

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Figure 4: Median nominal price-per-share and earnings-per-share, 1971-2011. This figure shows median nominal price-per-share and earnings-per-share, 1971-2011 for all US firms with price and earnings data in Compustat. 36
Table 2: Determinants of Shares Outstanding This table presents OLS cross sectional regression models of shares outstanding as a function of firm characteristics. Shares outstanding is measured as the total number of shares outstanding (1000’s) from CRSP at the end of the quarter. Net Income Volatility is the standard deviation of Net Income over the previous 12 quarters. Net Income Forecast Error Volatility - Naive is the standard deviation of the the difference between actual earnings and an expectation of earnings based on the earnings from 4 quarters prior plus the difference between the earnings 4 quarters and 8 quarters prior. Net Income Forecast Error Volatility - Analyst is the standard deviation of the the difference between actual earnings and median IBES forecast of earnings. Market to Book is total market equity plus the book value of total debt divided by total assets. Net Income is from Compustat at quarter end. Market Cap is the total market capitalization in millions at the quarter end. Institutional ownership is percent ownership of all institutions. Return Volatility is the standard deviation of daily stock returns over the prior 90 days. Annual Return is the past 12 month stock return. The Amihud measure of illiquidity calculated over the previous 90 days. Incentive Comp is the percent of total compensation made up by bonus, stock, and option grants. (1) (2) (3) (4) Shares Shares Shares Shares VARIABLES Outstanding Outstanding Outstanding Outstanding Net Income Volatility t−1 0.21*** 0.25*** (0.01) (0.01) Net Income Volatility - Naive Forecast t−1 0.21*** (0.01) Net Income Volatility - Analyst Forecast t−1 0.30*** (0.02) Market to Book t−1 0.01*** 0.01*** -0.01** -0.02** (0.00) (0.00) (0.00) (0.01) Net Income t−1 -0.11*** -0.11*** -0.09*** -0.07*** (0.01) (0.01) (0.01) (0.01) Institutional Ownership t−1 0.01** 0.01*** 0.00 -0.14*** (0.00) (0.00) (0.01) (0.02) Market Cap t−1 0.84*** 0.85*** 0.77*** 0.76*** (0.01) (0.01) (0.01) (0.01) Annual Return t−1 -0.04*** -0.04*** -0.05*** -0.10*** (0.00) (0.00) (0.00) (0.01) Amihud t−1 -0.05*** -0.06*** -0.11*** -0.43*** (0.00) (0.00) (0.00) (0.13) Return Volatility t−1 0.05*** 0.06*** 0.06*** 0.12*** (0.00) (0.00) (0.00) (0.01) Incentive Comp t−1 0.05*** (0.01) Constant -0.04*** -0.03*** 0.03** 0.11* (0.01) (0.01) (0.02) (0.06) Year Effects Y Y Observations 582,754 486,137 332,578 120,635 R-squared 0.81 0.81 0.81 0.82 Standard errors clustered by firm in parentheses *** p
Page 1 and 2: Gaming the Float: How Managers Resp
Page 3 and 4: earnings will choose more shares ou
Page 5 and 6: targets. Managers change the target
Page 7 and 8: it does not increase as the firm’
Page 9 and 10: meeting that forecast. This leads t
Page 11 and 12: 2.2 Time series determinants of sha
Page 13 and 14: ealized but before they are reporte
Page 15 and 16: A and incentive compensation in Pan
Page 17 and 18: elationship between incentive compe
Page 19 and 20: the view that increases in forecast
Page 21 and 22: In columns 2 and 3, we measure our
Page 23 and 24: atypical amount. In Table 9, we rep
Page 25 and 26: price levels observed in the data.
Page 27 and 28: management tools. 27
Page 29 and 30: De Angelis, D. and Y. Grinstein (20
Page 31 and 32: A Appendix We show that a drop in a
Page 33 and 34: Figure 1: Example of the relationsh
Page 35: Figure 3: Median Shares Outstanding
Page 39 and 40: Table 4: Shares Outstanding: First
Page 41 and 42: Table 6: Changes in Shares Outstand
Page 43 and 44: Table 8: Changes in Shares and Acco

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