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Stock option incentives and firm performance

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  • Hillegeist, Stephen A.

    (Kellog School of Management, Northwestern University)

  • Peñalva, Fernando

    (IESE Business School)

Abstract

This paper analyzes the performance consequences of employee stock options for a broad sample of firms during the period 1996-1999. Our tests are performed separately for the top 5 executives and all other employees. We estimate the expected level of option incentives based on each firm's economic characteristics. We examine the association between the unexpected level of option incentives and firm performance as measured by future abnormal returns, future return on assets, and current and future firm value (Tobin's Q). We find consistent evidence that firms with unexpectedly high levels of option incentives exhibit significantly higher levels of firm performance. The results hold for both Executives and Employees and are consistent across each of our three measures of firm performance.

Suggested Citation

  • Hillegeist, Stephen A. & Peñalva, Fernando, 2004. "Stock option incentives and firm performance," IESE Research Papers D/535, IESE Business School.
    • Handle: RePEc:ebg:iesewp:d-0535
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    References listed on IDEAS

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    Cited by:

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    2. Djaoudath Alidou, 2011. "Les augmentations de capital réservées aux salariés en France - Employee Equity Issue:Evidence from France," Working Papers CREGO 1110603, Université de Bourgogne - CREGO EA7317 Centre de recherches en gestion des organisations.
    3. Emmanuel Iatridis, George, 2018. "Accounting discretion and executive cash compensation: An empirical investigation of corporate governance, credit ratings and firm value," Journal of International Financial Markets, Institutions and Money, Elsevier, vol. 55(C), pages 29-49.
    4. Koustubh Kanti Ray, 2016. "Employee stock option plan and firm performance: A quantile regression approach," Asian Journal of Empirical Research, Asian Economic and Social Society, vol. 6(6), pages 152-166, June.
    5. David K. Ding & Ya Eem Chea, 2021. "Executive Compensation and Firm Performance in New Zealand: The Role of Employee Stock Option Plans," JRFM, MDPI, vol. 14(1), pages 1-19, January.
    6. Boubaker Adel & Berrahal Amira, 2015. "The impact of stock-options on the company’s financial performance," Bulletin of Business and Economics (BBE), Research Foundation for Humanity (RFH), vol. 4(2), pages 63-72, June.

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    More about this item

    Keywords

    Employee stock options; financial performance; corporate governance;
    All these keywords.

    JEL classification:

    • G32 - Financial Economics - - Corporate Finance and Governance - - - Financing Policy; Financial Risk and Risk Management; Capital and Ownership Structure; Value of Firms; Goodwill
    • J33 - Labor and Demographic Economics - - Wages, Compensation, and Labor Costs - - - Compensation Packages; Payment Methods
    • L14 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Transactional Relationships; Contracts and Reputation
    • L22 - Industrial Organization - - Firm Objectives, Organization, and Behavior - - - Firm Organization and Market Structure
    • M41 - Business Administration and Business Economics; Marketing; Accounting; Personnel Economics - - Accounting - - - Accounting

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