IDEAS home Printed from
   My bibliography  Save this paper

Executive Stock Options and Investment Choice


  • Chongwoo Choe

    (School of Economics, La Trobe University)


Using a simple three-period model in which a manager can gather information before making an investment decision, this paper studies incentive effects of various executive stock options. In particular, we show how the exercise price of executive stock options is related to base salary, the size of option grant, leverage, and the riskiness of desired investment policy. The optimal executive price increases in the size of grant and base salary, and decreases in leverage and the riskiness of desired investment policy. Other things equal, the optimal exercise price of European options with longer maturity should increase more for an increase in base salary and the size of the grant, and decrease more for an increase in leverage than the one with shorter maturity. The optimal exercise price of American options is determined completely by the optimal exercise prices of European options with two different maturities. Given the fixed exercise price, the size of option grant does not decrease in the face value of debt.

Suggested Citation

  • Chongwoo Choe, 1999. "Executive Stock Options and Investment Choice," Working Papers 1999.11, School of Economics, La Trobe University.
  • Handle: RePEc:trb:wpaper:1999.11

    Download full text from publisher

    To our knowledge, this item is not available for download. To find whether it is available, there are three options:
    1. Check below whether another version of this item is available online.
    2. Check on the provider's web page whether it is in fact available.
    3. Perform a search for a similarly titled item that would be available.

    Other versions of this item:


    Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.

    Cited by:

    1. Pasternack, Daniel & Rosenberg, Matts, 2003. "What Determines Stock Option Contract Design?," Working Papers 498, Hanken School of Economics.

    More about this item


    Contracts; Investments; Information;


    Access and download statistics


    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:trb:wpaper:1999.11. See general information about how to correct material in RePEc.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Stephen Scoglio). General contact details of provider: .

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    We have no references for this item. You can help adding them by using this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service hosted by the Research Division of the Federal Reserve Bank of St. Louis . RePEc uses bibliographic data supplied by the respective publishers.