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Stock vesting conditions, control benefits and managerial replacement

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  • Meg Adachi-Sato

Abstract

This article considers the effect of vesting conditions of stock-based compensation on firms decisions to replace managers. I indicate that firms may excessively replace managers with both long- and short-term vested stock-based compensation, while excessive retention can be caused only by short-term vested options. If the discount factor is sufficiently small, I also show that short-term vested stock-based compensation is the equilibrium contract. The study also has implications for regulations concerning mandatory deferral and clawback of executive pay.

Suggested Citation

  • Meg Adachi-Sato, 2018. "Stock vesting conditions, control benefits and managerial replacement," Canadian Journal of Economics, Canadian Economics Association, vol. 51(1), pages 275-313, February.
  • Handle: RePEc:cje:issued:v:51:y:2018:i:1:p:275-313
    DOI: 10.1111/caje.12323
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    JEL classification:

    • D86 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Economics of Contract Law

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