Firm Volatility and Stock Option Incidence
AbstractIn this paper, I present two models that describe the relationship between stock option incidence and stock price volatility. First, I present an industry-clockspeed human resources (HR) model. Firms in industries where products obsolesce quickly will grant stock options to motivate employees to exert high e.ort and shorten the product development cycle, which increases volatility of .rm performance. In the second approach, I present a model of cash-constrained .rms, where .rm stock price volatility is positively related to borrowing costs. If borrowing costs increase with performance volatility and risk, .rms will o.er stock options to conserve cash. Using the IT data, I .nd that option incidence is positively related to .rm volatility, which is consistent with the implications of both models, while the relationship between options incidence and .rm size and wages is more consistent with the Clockspeed-HR model.
Download InfoIf you experience problems downloading a file, check if you have the proper application to view it first. In case of further problems read the IDEAS help page. Note that these files are not on the IDEAS site. Please be patient as the files may be large.
Bibliographic InfoPaper provided by Institute of Industrial Relations, UC Berkeley in its series Institute for Research on Labor and Employment, Working Paper Series with number qt7gt1r0pn.
Date of creation: 19 Jun 2003
Date of revision:
Stock Market; Stock Options;
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
- William T. Dickens & Kevin Lang, 1985.
"A Test of Dual Labor Market Theory,"
NBER Working Papers
1314, National Bureau of Economic Research, Inc.
- Black, Fischer & Scholes, Myron S, 1973. "The Pricing of Options and Corporate Liabilities," Journal of Political Economy, University of Chicago Press, vol. 81(3), pages 637-54, May-June.
- Edward P. Lazear, 1999. "Output-based Pay: Incentives or Sorting?," NBER Working Papers 7419, National Bureau of Economic Research, Inc.
- Shapiro, Carl & Stiglitz, Joseph E, 1984. "Equilibrium Unemployment as a Worker Discipline Device," American Economic Review, American Economic Association, vol. 74(3), pages 433-44, June.
- Wadhwani, S. & Wall, M., 1988.
"A Direct Test Of The Efficiency Wage Model Using Uk Micro- Data,"
313, London School of Economics - Centre for Labour Economics.
- Wadhwani, Sushil B & Wall, Martin, 1991. "A Direct Test of the Efficiency Wage Model Using UK Micro-data," Oxford Economic Papers, Oxford University Press, vol. 43(4), pages 529-48, October.
- Garen, John E, 1994. "Executive Compensation and Principal-Agent Theory," Journal of Political Economy, University of Chicago Press, vol. 102(6), pages 1175-99, December.
- Walsh, Frank, 1999. "A Multisector Model of Efficiency Wages," Journal of Labor Economics, University of Chicago Press, vol. 17(2), pages 351-76, April.
- Campbell, Benjamin A., 2003. "Local Labor Market Conditions and Stock Options Incidence: A Study of the Information Technology Sector," Institute for Research on Labor and Employment, Working Paper Series qt7266d0q3, Institute of Industrial Relations, UC Berkeley.
- Rebitzer, James B & Taylor, Lowell J, 1991. "A Model of Dual Labor Markets When Product Demand Is Uncertain," The Quarterly Journal of Economics, MIT Press, vol. 106(4), pages 1373-83, November.
- Kremer, Michael, 1993. "The O-Ring Theory of Economic Development," The Quarterly Journal of Economics, MIT Press, vol. 108(3), pages 551-75, August.
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Lisa Schiff).
If references are entirely missing, you can add them using this form.