Limited attention to detail in financial markets: Evidence from reduced-form and structural estimation

• 成果类型: Article
• 署名作者: Cronqvist, Henrik; Ladika, Tomislav; Pazaj, Elisa; Sautner, Zacharias
• 署名单位: Chapman University System; Chapman University; University of Amsterdam; University of Zurich; Swiss Finance Institute (SFI)
• 刊物名称: JOURNAL OF FINANCIAL ECONOMICS
• ISSN/ISSBN: 0304-405X
• DOI: 10.1016/j.jfineco.2024.103811
• 发表日期: 2024
• 关键词: limited attention; Financial analysts; Option compensation; learning; Reusing natural experiments; structural estimation

摘要

We show that firm valuations fell after a key expense became more visible in financial statements. FAS 123R required firms to deduct option compensation costs from earnings, instead of disclosing them in footnotes. Firms that granted high option pay experienced earnings reductions, while fundamentals remained unchanged. These firms were more likely to miss earnings forecasts, and they experienced recommendation downgrades and valuation declines. Our findings suggest that market participants exhibited limited attention to option costs before FAS 123-R. As we reuse the FAS 123-R natural experiment, we show how one can address confounding channels by integrating reduced-form and structural estimation.