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Non-executive employee stock options and corporate innovation

Author

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  • Chang, Xin
  • Fu, Kangkang
  • Low, Angie
  • Zhang, Wenrui

Abstract

We provide empirical evidence on the positive effect of non-executive employee stock options on corporate innovation. The positive effect is more pronounced when employees are more important for innovation, when free-riding among employees is weaker, when options are granted broadly to most employees, when the average expiration period of options is longer, and when employee stock ownership is lower. Further analysis reveals that employee stock options foster innovation mainly through the risk-taking incentive, rather than the performance-based incentive created by stock options.

Suggested Citation

  • Chang, Xin & Fu, Kangkang & Low, Angie & Zhang, Wenrui, 2015. "Non-executive employee stock options and corporate innovation," Journal of Financial Economics, Elsevier, vol. 115(1), pages 168-188.
    • Handle: RePEc:eee:jfinec:v:115:y:2015:i:1:p:168-188
    DOI: 10.1016/j.jfineco.2014.09.002
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    More about this item

    Keywords

    Employee stock options; Corporate innovation; Risk-taking incentives; Employee compensation;
    All these keywords.

    JEL classification:

    • J33 - Labor and Demographic Economics - - Wages, Compensation, and Labor Costs - - - Compensation Packages; Payment Methods
    • M52 - Business Administration and Business Economics; Marketing; Accounting; Personnel Economics - - Personnel Economics - - - Compensation and Compensation Methods and Their Effects
    • O31 - Economic Development, Innovation, Technological Change, and Growth - - Innovation; Research and Development; Technological Change; Intellectual Property Rights - - - Innovation and Invention: Processes and Incentives

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