Determinants of the Introduction of Stock Options by Japanese Firms: Analysis from the Incentive and Selection Perspectives
This paper examines the determinants of the introduction of stock options in Japan, in response to their deregulation, from the incentive and selection perspectives. Younger firms use broad-based stock options more often, even after controlling firm size, growth, and the possibility of a liquidity constraint. Moreover, stock price volatility increases the adoption of stock options only when a firm is young. These results support the relevancy of a selection view that focuses on efficient project choice. Stock options are used more often by fast-growing firms and less in regulated industries and by the firms with concentrated ownership structure, consistent with both views.