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Stock Option Compensation and Managerial Turnover

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  • Raluca Georgiana NASTASESCU

    () (Northern Illinois University, USA)

Abstract

This study examines the association between managerial turnover and equity-based compensation. I investigate whether stock options act to bond executives to their firms and whether retention of managers is a motivation of companies in designing CEO incentive contracts. The results show that stock options do negatively influence the probability of a CEO leaving the company. The monetary cost of losing the value of equity-based compensation package keeps the manager with his company. I also find that in deciding upon a CEO's compensation scheme, firms take into account the probability of a CEO resigning from the company in the next period and award more stock options to reduce the threat of turnover. In general, the results show that stock options have an important role in managers' retention by testing economic explanations for observed behavior.

Suggested Citation

  • Raluca Georgiana NASTASESCU, 2009. "Stock Option Compensation and Managerial Turnover," REVISTA DE MANAGEMENT COMPARAT INTERNATIONAL/REVIEW OF INTERNATIONAL COMPARATIVE MANAGEMENT, Faculty of Management, Academy of Economic Studies, Bucharest, Romania, vol. 10(2), pages 352-366, May.
  • Handle: RePEc:rom:rmcimn:v:10:y:2009:i:2:p:352-366
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    File URL: http://www.rmci.ase.ro/no10vol2/Vol10_No2_Article14.pdf
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    References listed on IDEAS

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    1. Narayanan Subramanian & Atreya Chakraborty & Shahbaz Sheikh, 2007. "Repricing and Executive Turnover," The Financial Review, Eastern Finance Association, vol. 42(1), pages 121-141, February.
    2. C. Edward Fee, 2003. "Raids, Rewards, and Reputations in the Market for Managerial Talent," Review of Financial Studies, Society for Financial Studies, vol. 16(4), pages 1315-1357.
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    4. Huson, Mark R. & Malatesta, Paul H. & Parrino, Robert, 2004. "Managerial succession and firm performance," Journal of Financial Economics, Elsevier, vol. 74(2), pages 237-275, November.
    5. Coughlan, Anne T. & Schmidt, Ronald M., 1985. "Executive compensation, management turnover, and firm performance : An empirical investigation," Journal of Accounting and Economics, Elsevier, vol. 7(1-3), pages 43-66, April.
    6. Hamid Mehran & David Yermack, 1997. "Compensation and Top Management Turnover," New York University, Leonard N. Stern School Finance Department Working Paper Seires 98-051, New York University, Leonard N. Stern School of Business-.
    7. Balsam, Steven & Miharjo, Setiyono, 2007. "The effect of equity compensation on voluntary executive turnover," Journal of Accounting and Economics, Elsevier, vol. 43(1), pages 95-119, March.
    8. Hadlock, Charles J & Lumer, Gerald B, 1997. "Compensation, Turnover, and Top Management Incentives: Historical Evidence," The Journal of Business, University of Chicago Press, vol. 70(2), pages 153-187, April.
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    More about this item

    Keywords

    managerial retention; executive compensation; stock options; turnover; ownership.;

    JEL classification:

    • J63 - Labor and Demographic Economics - - Mobility, Unemployment, Vacancies, and Immigrant Workers - - - Turnover; Vacancies; Layoffs
    • R53 - Urban, Rural, Regional, Real Estate, and Transportation Economics - - Regional Government Analysis - - - Public Facility Location Analysis; Public Investment and Capital Stock

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