Why Do Firms Adopt CEO Stock Options? Evidence from the United States
26 Pages Posted: 27 Nov 2007 Last revised: 2 Aug 2009
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: Suggested Citation