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

Table 3: Shares Outstanding: First Differences
This table presents First Differences regression models of changes in shares outstanding as a function of changes in 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.
(1) (2) (3)
∆ Shares ∆ Shares ∆ Shares
VARIABLES Outstanding Outstanding Outstanding
∆ Net Income Volatility t−1 0.04***
(0.00)
∆ Net Income Volatility - Naive Forecast t−1 0.03***
(0.00)
∆ Net Income Volatility - Analyst Forecast t−1 0.07***
(0.01)
∆ Market to Book t−1 0.01*** 0.02*** 0.02***
(0.00) (0.00) (0.00)
∆ Net Income t−1 0.00 0.00 0.01***
(0.00) (0.00) (0.00)
∆ Institutional Ownership t−1 0.12*** 0.13*** 0.13***
(0.00) (0.00) (0.00)
∆ Market Cap t−1 0.10*** 0.10*** 0.10***
(0.00) (0.00) (0.00)
∆ Annual Return t−1 0.00 -0.00 -0.00
(0.00) (0.00) (0.00)
∆ Amihud t−1 -0.01*** -0.01*** -0.02***
(0.00) (0.00) (0.00)
∆ Return Volatility t−1 0.01*** 0.01*** 0.02***
(0.00) (0.00) (0.00)
∆ Incentive Comp t−1
Constant 0.02 0.02 0.24
(0.02) (0.02) (0.29)
Year Effects Y Y Y
Observations 543,355 454,258 313,297
R-squared 0.03 0.03 0.03
Standard errors clustered by firm in parentheses
*** p