Are CEO stock option grants optimal? Evidence from family firms and non-family firms around the Sarbanes–Oxley Act

Are CEO stock option grants optimal? Evidence from family firms and non-family firms around the... This paper investigates the optimality of stock option grants to Chief Executive Officers (CEOs) by examining a set of S&P 500 companies around the passage of the Sarbanes–Oxley Act (SOX). I find that stock option grants to non-founding-family CEOs decreased dramatically after the passage of SOX. In addition, non-family firms granted significantly more stock options than family firms before the SOX, but not after its passage. These findings are consistent with the interpretation that CEOs use stock option grants as tools to extract rents from shareholders. This interpretation is further supported by evidence that the large decrease in stock option grants after the SOX was passed is not detrimental to firm performance, and by evidence from a test of the trade-off between option and non-option compensation. http://www.deepdyve.com/assets/images/DeepDyve-Logo-lg.png Review of Quantitative Finance and Accounting Springer Journals

Are CEO stock option grants optimal? Evidence from family firms and non-family firms around the Sarbanes–Oxley Act

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Publisher
Springer US
Copyright
Copyright © 2012 by Springer Science+Business Media New York
Subject
Economics / Management Science; Finance/Investment/Banking; Accounting/Auditing; Econometrics; Operations Research/Decision Theory
ISSN
0924-865X
eISSN
1573-7179
D.O.I.
10.1007/s11156-012-0341-9
Publisher site
See Article on Publisher Site

Abstract

This paper investigates the optimality of stock option grants to Chief Executive Officers (CEOs) by examining a set of S&P 500 companies around the passage of the Sarbanes–Oxley Act (SOX). I find that stock option grants to non-founding-family CEOs decreased dramatically after the passage of SOX. In addition, non-family firms granted significantly more stock options than family firms before the SOX, but not after its passage. These findings are consistent with the interpretation that CEOs use stock option grants as tools to extract rents from shareholders. This interpretation is further supported by evidence that the large decrease in stock option grants after the SOX was passed is not detrimental to firm performance, and by evidence from a test of the trade-off between option and non-option compensation.

Journal

Review of Quantitative Finance and AccountingSpringer Journals

Published: Jan 1, 2013

References

  • CEO stock option awards and the timing of corporate voluntary disclosures
    Aboody, D; Kasznik, R
  • Incentives of stock option based compensation
    Agliardi, E; Andergassen, R

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