Abstract

http://ssrn.com/abstract=2207026
 
 

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Swinging for the Fences: Executive Reactions to Quasi-Random Option Grants


Kelly Shue


University of Chicago - Booth School of Business; National Bureau of Economic Research (NBER)

Richard R. Townsend


Dartmouth College - Tuck School of Business

August 12, 2014

Chicago Booth Research Paper No. 13-03
Fama-Miller Working Paper

Abstract:     
We examine how executive stock options affect risk-taking by exploiting two distinct sources of variation in option compensation that arise from institutional features of multi-year grant cycles. We find that, given average grant levels during our sample period, a 10 percent increase in new options granted leads to a 3–6 percent increase in equity volatility. This increase in risk is driven largely by increased leverage. We also find that increased options lead to lower dividend growth, with mixed effects on investment and performance.

Number of Pages in PDF File: 70

Keywords: Executive compensation, Incentives, Risk-taking, Pay-for-performance

JEL Classification: M52, J33, G32, G34

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Date posted: February 6, 2013 ; Last revised: September 12, 2014

Suggested Citation

Shue, Kelly and Townsend, Richard R., Swinging for the Fences: Executive Reactions to Quasi-Random Option Grants (August 12, 2014). Chicago Booth Research Paper No. 13-03; Fama-Miller Working Paper. Available at SSRN: http://ssrn.com/abstract=2207026 or http://dx.doi.org/10.2139/ssrn.2207026

Contact Information

Kelly Shue (Contact Author)
University of Chicago - Booth School of Business ( email )
5807 S Woodlawn Avenue
Chicago, IL 60637
United States
HOME PAGE: http://https://sites.google.com/site/kellyshue/

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National Bureau of Economic Research (NBER) ( email )
1050 Massachusetts Avenue
Cambridge, MA 02138
United States
Richard R. Townsend
Dartmouth College - Tuck School of Business ( email )
Hanover, NH 03755
United States
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