What determines stock option contract design?

Eva Liljeblom, Daniel Pasternack, Matts Rosenberg

Forskningsoutput: TidskriftsbidragArtikelVetenskapligPeer review

14 Citeringar (Scopus)

Sammanfattning

We analyze the factors that drive exercise price policy for executive option plans (ESOPs) and their scope in a country where firms are not subject to the tax and accounting considerations that seem to have led to the dominance of at-the-money options in the US Our “unbounded” data for Finland provide us with an excellent opportunity to investigate whether contract design is consistent with compensation theory. Our findings are largely consistent with predictions from the optimal contracting literature. The size of the plan is negatively related to Tobin's Q and firm size and positively related to proxies for monitoring costs, which also influence the probability of launching premium ESOPs. Our results also show that the premium (out-of-the-moneyness) is negatively related to prior stock returns and cash flow-to-assets, which may be an indication of high-water mark contracting, or alternatively, of managerial power. Finally, we also find some support for a positive relation between the premium and the length of the vesting period when maturity is fixed, which indicates an effort to keep the incentives for management from falling over time.
OriginalspråkEngelska
Referentgranskad vetenskaplig tidskriftJournal of Financial Economics
Volym102
Utgåva2
Sidor (från-till)293-316
Antal sidor24
ISSN0304-405X
DOI
StatusPublicerad - 2011
MoE-publikationstypA1 Originalartikel i en vetenskaplig tidskrift

Nyckelord

  • 511 Nationalekonomi
  • KOTA2011

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