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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)

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    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.

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    Bibliographic Info

    Paper provided by IESE Business School in its series IESE Research Papers with number D/535.

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    Length: 38 pages
    Date of creation: 19 Jan 2004
    Date of revision:
    Handle: RePEc:ebg:iesewp:d-0535

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    Postal: IESE Business School, Av Pearson 21, 08034 Barcelona, SPAIN
    Web page: http://www.iese.edu/
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    Keywords: Employee stock options; financial performance; corporate governance;

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    References

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    Cited by:
    1. Aboody, David & Johnson, Nicole Bastian & Kasznik, Ron, 2010. "Employee stock options and future firm performance: Evidence from option repricings," Journal of Accounting and Economics, Elsevier, vol. 50(1), pages 74-92, May.
    2. Hristos Doucouliagos & Michael Graham & Janto Haman, 2012. "Dynamics and Convergence in Chief Executive Officer Pay," Economics Series 2012_3, Deakin University, Faculty of Business and Law, School of Accounting, Economics and Finance.
    3. 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.

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