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Do Stock Opiton Schemes Affect Technical Inefficiency? Evidence from Finland

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Author Info
Mikko Mäkinen
Abstract

ABSTRACT : In this paper we study whether stock option schemes affect firm technical inefficiency. We estimate Cobb-Douglas stochastic production frontier models using a novel panel data set on the publicly listed Finnish firms in the manufacturing and ICT sectors over the period from 1992 to 2002. We find evidence that the mean inefficiency estimates in the ICT sector are clearly higher than in the manufacturing sector. Furthermore, our empirical findings suggest that broad-based option firms may have higher mean inefficiency than selective and non-option firms in the manufacturing sector. The quantitative assessments of the marginal effects on the inefficiency support the view that especially broad-based schemes affect the mean and the variance of the inefficiency term uit in the manufacturing sector, but not in the ICT sector. Our findings do not provide empirical support for the view that stock option schemes reduce firm technical inefficiency

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Paper provided by The Research Institute of the Finnish Economy in its series Discussion Papers with number 1085.

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Length: 26 pages
Date of creation: 02 Apr 2007
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Handle: RePEc:rif:dpaper:1085

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Keywords: stochastic frontier; technical inefficiency; production function; stock options;

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