The Value of Vesting Restrictions on Managerial Stock and Option Holdings

48 Pages Posted: 23 May 2008 Last revised: 18 Oct 2011

See all articles by J. Daniel Chi

J. Daniel Chi

University of Nevada, Las Vegas (UNLV) - Department of Finance

Shane A. Johnson

Texas A&M University - Department of Finance

Date Written: March 9, 2009

Abstract

Firm value and operating performance are positively related to managerial incentives from both vested and unvested stock and option holdings. The effects of incentives on firm value and operating performance are significantly larger for unvested stock and options than for vested ones, however, and the effects increase in the length of the vesting period. We find corroborating evidence of the effects of vesting restrictions on firm value using an event study of corporate acquisition announcements. Collectively, the results imply that the potential benefits of incentive contracts with longer vesting periods outweigh their potential costs and imply that vesting restrictions are an important dimension of incentive contracts.

Keywords: executive compensation, CEO pay, vesting restrictions, contracts

JEL Classification: G12, J33, G34

Suggested Citation

Chi, Jianxin Daniel and Johnson, Shane A., The Value of Vesting Restrictions on Managerial Stock and Option Holdings (March 9, 2009). Available at SSRN: https://ssrn.com/abstract=1136298 or http://dx.doi.org/10.2139/ssrn.1136298

Jianxin Daniel Chi

University of Nevada, Las Vegas (UNLV) - Department of Finance ( email )

4505 S. Maryland Parkway
Box 456008
Las Vegas, NV 89154-6008
United States

HOME PAGE: http://www.unlv.edu/people/jianxin-chi

Shane A. Johnson (Contact Author)

Texas A&M University - Department of Finance ( email )

Mays School of Business
College Station, TX 77843-4218
United States
979-862-3318 (Phone)

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