Incentive Efficiency of Stock versus Options

Incentive Efficiency of Stock versus Options This paper examines the relative incentive costs of using stockversus options in management incentive contracts that use market priceas the performance measure. We establish that if the manager'seffort has little or no effect on a firm's operating risk, thenthe cost of incentive risk is less using stock rather than options.However, this result is reversed if the manager's effort has asignificant impact on the firm's operating risk. http://www.deepdyve.com/assets/images/DeepDyve-Logo-lg.png Review of Accounting Studies Springer Journals

Incentive Efficiency of Stock versus Options

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Publisher
Springer Journals
Copyright
Copyright © 2001 by Kluwer Academic Publishers
Subject
Business and Management; Accounting/Auditing; Corporate Finance; Public Finance
ISSN
1380-6653
eISSN
1573-7136
D.O.I.
10.1023/A:1011377902967
Publisher site
See Article on Publisher Site

Abstract

This paper examines the relative incentive costs of using stockversus options in management incentive contracts that use market priceas the performance measure. We establish that if the manager'seffort has little or no effect on a firm's operating risk, thenthe cost of incentive risk is less using stock rather than options.However, this result is reversed if the manager's effort has asignificant impact on the firm's operating risk.

Journal

Review of Accounting StudiesSpringer Journals

Published: Oct 3, 2004

References

  • The Effect of Executive Stock Option Plans on Stockholders and Bondholders
    Defusco, R. A.; Johnson, R. R.; Zorn, T. S.
  • Public Reports, Information Acquisition by Investors, and Management Incentives
    Feltham, G. A.; Wu, M. G. H.

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