Managerial incentives for attracting attention and firm investor base

This thesis studies how managerial incentives relate to strategic transmission of soft information from managers to investors in order to attract attention of financial markets. Additionally, I study trading reaction of different investors (large sophisticated vs. small individual) to CEO voluntary announcements and how their trading is affected when managerial incentives are taken into account. I use large panel data and several alternative proxies for soft information together with intraday trading data to distinguish between the types of investors. The findings suggest that an increase in the proportion of managerial variable compensation is correlated with the increased use of attention attracting mechanisms like stock split announcements, CEO annual EPS forecasts and firm media coverage. Remarkably, such an increase in attention is not for free given that the probability of CEO turnover increases if managers fail to obtain positive stock returns. Further, I examine investors' trading reaction to managerial voluntary disclosures (EPS forecasts) and find that small investors follow simple trading strategy and buy on positive CEO announcements, whereas large investors react in a contrarian way. In addition, I find that both types of investors take into account managerial incentives while trading, though in opposite ways. Small investors see managerial variable compensation as an incentive to lure them into more buying to optimistic announcements. Large investors, on the other hand, look at managerial pay-forperformance incentives as a mechanism of aligning managers' and shareholders' interests