Doom or Gloom? CEO Stock Options After Enron
University of Wyoming - College of Business - Department of Economics and Finance
Thomas H. Noe
University of Oxford - Said Business School; University of Oxford - Balliol College; European Corporate Governance Institute; University of Oxford - Said Business School
Vladimir A. Gatchev
University of Central Florida - Department of Finance
February 1, 2008
AFA 2006 Boston Meetings Paper
EFA 2008 Athens Meetings Paper
This study finds a significant and pervasive decline but not an elimination of CEO optionbased compensation after the corporate governance scandals around 2000-2001 centered on executive option compensation. Some, but not all, of the drop is predicted by changes in the characteristics of firms, CEOs, boards of directors, and markets. In the cross-section, the change in CEO options is positively related to firm size, growth opportunities, ownership by large pension funds, and CEO experience and negatively related to firm age, board size, and "fair" value expensing of options. The findings provide significant support for the hypothesis that CEO options are affected by optimal contracting considerations, the hypothesis that CEO power is a significant determinant of CEO options, and, to some extent, the hypothesis that differences in perceived and actual costs of CEO options are important. Overall, however, the optimal contracting hypothesis is most able to explain the cross-sectional variation in the decline in options after the scandals.
Number of Pages in PDF File: 45
Keywords: Executive stock options, Executive compensation, Corporate governance
JEL Classification: G14, G32, J33, M52
Date posted: December 7, 2004
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