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

Table 5: Changes in Shares Outstanding: Stock Splits and EPS
This table presents IV regression models of shares outstanding as a function of firm characteristics. In these specifications, Net Income Error Volatility is instrumented for using
exogenous changes in analyst coverage. Columns 1 presents standardized regression coefficients. Columns 1 and 2 show changes in shares outstanding due to splits and other
than splits respectively. Column 3 controls for high and low stock prices where High is defined as stocks above $80 and Low is defined as below $20. Columns 4 and 5 show
results for share changes due to splits for firms with negative EPS and positive EPS. Column 6 and 7 shows results for share changes do to splits for firms with above median
incentive compensation and below median incentive compensation. Shares outstanding is measured as the total number of shares outstanding (1000’s) from CRSP at the end of
the quarter. Net Income Error volatility 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. Operating income is defined as operating income before interest and depreciation 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.
(1) (2) (3) (4) (5) (6)
∆ Shares ∆ Shares s ∆ Shares ∆ Shares ∆ Shares ∆ Shares
VARIABLES non-Splits from Splits from Splits from Splits from Splits from Splits
Full Sample Full Sample Negative EPS Positive EPS Low Incent. Comp High Incent. Comp
∆ Net Income Volatility - Analyst Forecastt−1 136 6,676*** 2,115 7,204*** 4,142 15,867*
(268) (1,709) (1,714) (1,907) (3,146) (9,302)
∆ Market to Bookt−1 -11 241*** 38 458*** 989*** 312*
(9) (61) (31) (112) (223) (182)
∆ Net Incomet−1 13 408*** 51 536*** 412* 632*
(14) (106) (43) (145) (230) (332)
∆ Institutional Ownershipt−1 196*** 282*** -36 422*** 752*** 307***
(6) (44) (37) (63) (169) (102)
∆ Market Capt−1 114*** 587*** 412*** 547*** 635*** 332
(10) (72) (107) (95) (112) (277)
∆ Annual Returnt−1 3 -45 -32 -30 -239 162
(10) (62) (25) (94) (249) (297)
∆ Amihudt−1 -40*** 1 11 -20 44 147
(6) (22) (24) (21) (481) (532)
∆ Return Volatilityt−1 22*** 150*** 27* 244*** 464*** 117
(5) (23) (14) (37) (100) (113)
Constant 246*** 255* 281 39 99 713
(28) (139) (204) (184) (271) (738)
Year Effects Y Y Y Y Y Y
Observations 245,267 245,281 60,781 184,144 55,820 51,195
Standard errors clustered by firm in parentheses
*** p