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

This study examines the association between long-term performance plans and wealth effects accruing to stockholders of divesting firms at announcements of sell-off propos als. The results indicate that divesting companies with long-term per formance plans experience a more favorable stock-market reaction at t he announcement of sell-off proposals relative to firms without long- term performance plans. The findings imply that longterm performance plans serve as an effective mechanism to motivate managers to make better decisions. Copyright 1987 by American Finance Association.

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