Alex Edmans, Professor of Finance at London Business School, has won the award for the Best Empirical Paper at the prestigious Western Finance Association annual conference for his paper, ‘Equity Vesting and Managerial Myopia’.
The paper, which Edmans co-authored with Vivian W Fang, Assistant Professor of Accounting, University of Minnesota and Katharina Lewellen, Associate Professor of Business Administration, Tuck School of Business, finds that CEO contracts give them incentives to pursue short-term profits at the expense of long-term value. In years in which they have significant equity vesting, CEOs cut investment in research and development, advertising, and capital expenditure, and they do so to ensure they meet short-term earnings targets.
Professor Edmans says: “My co-authors and I are thrilled to win this award. We hope that our findings encourage boards to design compensation packages that incentivise executives to pursue long-term value, not short-term numbers.”
Professor Edmans is an advocate of the importance of long-term value. In a recent TEDx talk ‘The Social Responsibility of Business’ he challenged the notion that caring for society is at the expense of profit, discussing the long-term benefits of social responsibility for shareholder value.
He has also recently been awarded a research grant of £640,519 (€900,000) from the European Research Council (ERC) to fund a three-year research programme on long-term investment.
The Western Finance Association is a professional society for academics and practitioners with a scholarly interest in the development and application of research in finance.