Incentives, Targeting and Firm Performance: An Analysis of Non-Executive Stock Options
Yael V. Hochberg
National Bureau of Economic Research (NBER); Rice University - Jesse H. Jones Graduate School of Business
Laura Anne Lindsey
Arizona State University (ASU) - Finance Department
April 28, 2009
Review of Financial Studies, Forthcoming
We examine whether options granted to non-executive employees affect firm performance. Using new data on option programs, we explore the link between broad-based option programs, option portfolio implied incentives, and firm operating performance, utilizing an instrumental variables approach to identify causal effects. Firms whose employee option portfolios have higher implied incentives exhibit higher subsequent operating performance. Intuitively, the implied incentive-performance relation is concentrated in firms with fewer employees and in firms with higher growth opportunities. Additionally, the effect is concentrated in firms that grant options broadly to non-executive employees, consistent with theories of cooperation and mutual monitoring among co-workers.
Number of Pages in PDF File: 44
Date posted: September 15, 2008 ; Last revised: July 19, 2010
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