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

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  • Swee-Sum Lam

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  • Bey-Fen Chng

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    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. Copyright Springer Science + Business Media, Inc. 2006

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    File URL: http://hdl.handle.net/10.1007/s11156-006-7433-3
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    Bibliographic Info

    Article provided by Springer in its journal Review of Quantitative Finance and Accounting.

    Volume (Year): 26 (2006)
    Issue (Month): 3 (May)
    Pages: 249-274

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    Handle: RePEc:kap:rqfnac:v:26:y:2006:i:3:p:249-274

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    Web page: http://springerlink.metapress.com/link.asp?id=102990

    Related research

    Keywords: Executive stock option grants; Compensation; Agency theory; Firm performance; Endogeneity;

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    Cited by:
    1. Chia-Ying Chan & Ling-Chu Lee & Ming-Chun Wang, 2010. "Employee stock options pricing and the implication of restricted exercise price: evidence from Taiwan," Review of Quantitative Finance and Accounting, Springer, vol. 34(2), pages 247-271, February.
    2. Sylvie Berthelot & Claude Francoeur & RĂ©al Labelle, 2012. "Corporate governance mechanisms, accounting results and stock valuation in Canada," International Journal of Managerial Finance, Emerald Group Publishing, vol. 8(4), pages 332-343.

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