Do executive stock option grants have value implications for firm performance?


DOI: 10.1007/s11156-006-7433-3

Cite this article as:
Lam, SS. & Chng, BF. Rev Quant Finan Acc (2006) 26: 249. doi:10.1007/s11156-006-7433-3


Consistent with predictions of agency theory, we find direct evidence that executive stock option grants have value implications for firm performance. This inference is drawn from evaluation of various motivations for the use of such grants in executive compensation: value enhancement, risk taking, tax benefit, signaling and cash conservation. We find consistent evidence for the value enhancement motivation to reduce agency costs. As well, they signal for positive price sensitive information. Our results reject the tax benefit and cash conservation motivations. This finding is robust after controlling for the endogenous character of executive stock option grants and other equity-based grants.


Executive stock option grants Compensation Agency theory Firm performance Endogeneity 

Copyright information

© Springer Science + Business Media, Inc. 2006

Authors and Affiliations

  1. 1.Department of Finance and Accounting, The NUS Business SchoolNational University of SingaporeSingapore
  2. 2.ExxonMobil Asia Pacific Pte LtdSingapore