Do corporations award CEO stock options effectively?

Do corporations award CEO stock options effectively? This paper analyzes stock option awards to CEOs of 792 U.S. public corporations between 1984 and 1991. Using a Black-Scholes approach, I test whether stock options' performance incentives have significant associations with explanatory variables related to agency cost reduction. Further tests examine whether the mix of compensation between stock options and cash pay can be explained by corporate liquidity, tax status, or earnings management. Results indicate that few agency or financial contracting theories have explanatory power for patterns of CEO stock option awards. http://www.deepdyve.com/assets/images/DeepDyve-Logo-lg.png Journal of Financial Economics Elsevier

Do corporations award CEO stock options effectively?

Journal of Financial Economics, Volume 39 (2) – Oct 1, 1995

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Publisher
Elsevier
Copyright
Copyright © 1995 Elsevier Ltd
ISSN
0304-405x
D.O.I.
10.1016/0304-405X(95)00829-4
Publisher site
See Article on Publisher Site

Abstract

This paper analyzes stock option awards to CEOs of 792 U.S. public corporations between 1984 and 1991. Using a Black-Scholes approach, I test whether stock options' performance incentives have significant associations with explanatory variables related to agency cost reduction. Further tests examine whether the mix of compensation between stock options and cash pay can be explained by corporate liquidity, tax status, or earnings management. Results indicate that few agency or financial contracting theories have explanatory power for patterns of CEO stock option awards.

Journal

Journal of Financial EconomicsElsevier

Published: Oct 1, 1995

References

  • The effect of executive stock option plans on stockholders and bondholders
    DeFusco, Richard A.; Johnson, Robert R.; Zorn, Thomas S.
  • Agency, delayed compensation, and the structure of executive remuneration
    Eaton, Jonatha; Rosen, Harvey S.
  • Resolving the agency problems of external capital through options
    Haugen, Robert A.; Senbet, Lemma W.
  • Top-management compensation and capital structure
    John, Teresa A.; John, Kose
  • Executive compensation structure, ownership, and firm performance
    Mehran, Hamid

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