, Volume 26, Issue 3, pp 249-274

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

Rent the article at a discount

Rent now

* Final gross prices may vary according to local VAT.

Get Access

Abstract

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.

JEL Classification G32 • J33 • M52