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Incentive effects of executive compensation and the valuation of firm assets

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  • O'Connor, Matthew L.
  • Rafferty, Matthew

Abstract

This paper examines how executive compensation influences the market value of the firm's assets. After controlling for endogeneity, we find that boards have set the incentive to incur risk (vega) to maximize shareholder value, but that incentives to increase returns (delta) do not maximize shareholder value. We also find that current levels of cash compensation do not maximize shareholder value. Finally, we consider the moneyness of stock options. We find that the level of at- and out-of-the money options maximize shareholder value, but the level of in-the money options do not maximize shareholder value.

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Bibliographic Info

Article provided by Elsevier in its journal Journal of Corporate Finance.

Volume (Year): 16 (2010)
Issue (Month): 4 (September)
Pages: 431-442

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Handle: RePEc:eee:corfin:v:16:y:2010:i:4:p:431-442

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Web page: http://www.elsevier.com/locate/jcorpfin

Related research

Keywords: Executive compensation Asset valuation Incentive effects;

References

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