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Doom or Gloom? CEO Stock Options After Enron
Suman Banerjee Nanyang Business School Vladimir A. Gatchev University of Central Florida - Department of Finance Thomas H. Noe Oxford (SBS and Balliol) February 1, 2008 AFA 2006 Boston Meetings Paper EFA 2008 Athens Meetings Paper Abstract: 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.
Keywords: Executive stock options, Executive compensation, Corporate governance JEL Classifications: G14, G32, J33, M52 Working Paper SeriesDate posted: December 07, 2004 ; Last revised: February 04, 2008Suggested CitationContact Information
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