Publication: Limited attention to detail in financial markets: Evidence from reduced-form and structural estimation
Limited attention to detail in financial markets: Evidence from reduced-form and structural estimation
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Cronqvist, H., Ladika, T., Pazaj, E., & Sautner, Z. (2024). Limited attention to detail in financial markets: Evidence from reduced-form and structural estimation. Journal of Financial Economics, 154, 103811. https://doi.org/10.1016/j.jfineco.2024.103811
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We show that firm valuations fell after a key expense became more visible in financial statements. FAS 123-R 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
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- Cronqvist, Henrik
- Ladika, Tomislav
- Pazaj, Elisa
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Cronqvist, H., Ladika, T., Pazaj, E., & Sautner, Z. (2024). Limited attention to detail in financial markets: Evidence from reduced-form and structural estimation. Journal of Financial Economics, 154, 103811. https://doi.org/10.1016/j.jfineco.2024.103811
