Journal of Productivity Analysis

, Volume 33, Issue 1, pp 67-80

First online:

The productivity effects of stock option schemes: evidence from Finnish panel data

  • Derek C. JonesAffiliated withDepartment of Economics, Hamilton College
  • , Panu KalmiAffiliated withDepartment of Economics, Helsinki School of Economics and HECER
  • , Mikko MäkinenAffiliated withDepartment of Economics, Helsinki School of Economics and HECER Email author 

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In this study we investigate the productivity effects of employee stock option schemes. We estimate Cobb-Douglas production functions by using new panel data for all Finnish publicly listed firms during 1992–2002. The data enable us to distinguish broad-based option plans, for which all employees are eligible, from those selectively allocated to particular employees. For both type of schemes, our baseline fixed effects estimators consistently find statistically insignificant associations with firm productivity. When endogeneity of production inputs and option-schemes are taken into account we continue to find no evidence of a link with firm productivity. Our main findings are consistent with hypotheses that predict negligible effects of option plans for enterprise performance, such as those based on free riding, psychological expectancy theory, accounting myopia, or rent-seeking. We consider reasons why our empirical findings on the impact of broad-based options differ from those found in earlier studies.


Productivity Panel data Employee stock options Compensation and compensation methods and their effects

JEL Classification

D24 C33 J33 M52