Why Do Firms Adopt CEO Stock Options? Evidence from the United States

26 Pages Posted: 27 Nov 2007 Last revised: 2 Aug 2009

Abstract

This paper examines the determinants of stock option introduction as a part of CEO compensation in listed US firms during the 1994-2004 period. The results are consistent with agency costs and recruiting considerations, and suggest that firms do not adjust CEO compensation in order to address the 'investment horizon' problem. The findings also suggest that CEO stock option adoption is not necessarily influenced by the same factors that have been found in the literature to affect the level of CEO stock-option compensation and the adoption of broad-based stock-option incentives. Overall, the findings provide evidence for several theoretical predictions, thus adding to our understanding of managerial incentives.

Keywords: Stock options, CEO compensation

JEL Classification: J33, M12, M52

Suggested Citation

Tzioumis, Konstantinos, Why Do Firms Adopt CEO Stock Options? Evidence from the United States. Journal of Economic Behavior and Organization, Vol. 68, No. 1, 2008. Available at SSRN: https://ssrn.com/abstract=1032790

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