The Effect of Long-Term Performance Plans on Corporate Sell-Off-Induced Abnormal Returns

Authors

  • HASSAN TEHRANIAN,

  • NICKOLAOS G. TRAVLOS,

  • JAMES F. WAEGELEIN

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    • Tehranian and Travlos are from the Department of Finance, Boston College. Waegelein is from the Department of Accounting, University of Kansas. The authors thank Thomas Downs, Marcia Millon, George Papaioannou, John G. Preston, Jerry Viscione, and an anonymous referee for their helpful comments.

ABSTRACT

This study examines the association between long-term performance plans and wealth effects accruing to stockholders of divesting firms at announcements of sell-off proposals. The results indicate that divesting companies with long-term performance plans experience a more favorable stock market reaction at the announcement of sell-off proposals relative to firms without long-term performance plans. The findings imply that long-term performance plans serve as an effective mechanism to motivate managers to make better decisions.

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