Seeking Alphas from Underperforming Stocks: The Corporate Governance Perspective

When a firm's stock is underperforming, the likelihood of recovery and what drives the recovery should be of interest to both academics and practitioners. In this article, the authors find the number of options in top executives' compensation to be positively associated with the chance of...

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Bibliographic Details
Published in:Journal of Investing 2014-10, Vol.23 (3), p.23-34
Main Authors: Pyles, Mark K., Wang, Weishen
Format: Article
Language:English
Subjects:
Abnormal returns
Corporate governance
Correlation analysis
Datasets
Earnings management
Executive compensation
Portfolio management
Portfolio performance
Rates of return
Stockholders
Studies
Variables
Citations: Items that this one cites
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Summary:When a firm's stock is underperforming, the likelihood of recovery and what drives the recovery should be of interest to both academics and practitioners. In this article, the authors find the number of options in top executives' compensation to be positively associated with the chance of improvement, while firm earnings management has a negative influence. Utilizing these findings, the authors create portfolios that can achieve annualized abnormal returns in the range of 5% to 23%, significantly higher than those from a simple buying-loser trading strategy.
ISSN:1068-0896
2168-8613
DOI:10.3905/joi.2014.23.3.023