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The adoption of stock option plans and their effects on firm performance during Japan’s period of corporate governance reform

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  • Hasegawa, Nobuhisa
  • Kim, Hyonok
  • Yasuda, Yukihiro

Abstract

This paper empirically investigates the adoption of stock option plans and their effects on firm performance in Japan. Using the sample of the period of corporate governance reform in the 2000s, we find that the adoption of stock option plans was more likely at firms in an industry where many firms had already introduced stock option plans. The result indicates a type of herding behavior among Japanese firms. We further find that firms rushed to grant stock options just before the adoption of the new accounting standard (ASBJ Statement No. 8). Unique to Japan, this standard requires stock option expensing only for newly granted options. We also find that operating performance decreased, but that payout and liquidity ratios remained almost constant after the adoption of stock option plans. Overall, the results do not support the view, at least in the Japanese context, that stock options can function as a primary incentive for improving firm performance.

Suggested Citation

  • Hasegawa, Nobuhisa & Kim, Hyonok & Yasuda, Yukihiro, 2017. "The adoption of stock option plans and their effects on firm performance during Japan’s period of corporate governance reform," Journal of the Japanese and International Economies, Elsevier, vol. 44(C), pages 13-25.
    • Handle: RePEc:eee:jjieco:v:44:y:2017:i:c:p:13-25
    DOI: 10.1016/j.jjie.2017.02.002
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    2. Fukuda, Akira, 2020. "The Effects of M&A on Corporate Performance in Japan:DID Analysis in the Era of Corporate Governance Reform," Japan and the World Economy, Elsevier, vol. 55(C).

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    More about this item

    Keywords

    Stock option; Herding behavior; Accounting cost; Firm performance;
    All these keywords.

    JEL classification:

    • G21 - Financial Economics - - Financial Institutions and Services - - - Banks; Other Depository Institutions; Micro Finance Institutions; Mortgages
    • G34 - Financial Economics - - Corporate Finance and Governance - - - Mergers; Acquisitions; Restructuring; Corporate Governance
    • G32 - Financial Economics - - Corporate Finance and Governance - - - Financing Policy; Financial Risk and Risk Management; Capital and Ownership Structure; Value of Firms; Goodwill
    • G35 - Financial Economics - - Corporate Finance and Governance - - - Payout Policy

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