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Executive stock options, stock price volatility, and agency costs in the Philippine setting

Author

Listed:
  • Clifford S. Ang

    (Olin School of Business, Washington University in St. Louis, USA)

  • Daniel Vincent H. Borja

    (College of Business Administration, University of the Philippines Diliman, Quezon City)

Abstract

Firms compensate management with executive stock option plans to mitigate the agency problem arising from conflicts of interest between shareholders and managers. However, due to the nature of stock options, the value to the option holder increases when the volatility of the underlying stock rises. Unfortunately, the decisions that affect the expected future cash flows of the firm still remain under the control of executives. Using a pooled least squares regression on a sample of 30 PHISIX firms from the period 1998 to 2001, we find that the presence of executive stock option plans significantly affects the volatility of the firm’s stock return.

Suggested Citation

  • Clifford S. Ang & Daniel Vincent H. Borja, 2003. "Executive stock options, stock price volatility, and agency costs in the Philippine setting," Philippine Review of Economics, University of the Philippines School of Economics and Philippine Economic Society, vol. 40(2), pages 117-124, December.
    • Handle: RePEc:phs:prejrn:v:40:y:2003:i:2:p:117-124
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    File URL: http://pre.econ.upd.edu.ph/index.php/pre/article/view/25/572
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    More about this item

    Keywords

    Executive stock options; managerial compensation;

    JEL classification:

    • M52 - Business Administration and Business Economics; Marketing; Accounting; Personnel Economics - - Personnel Economics - - - Compensation and Compensation Methods and Their Effects

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