Download this Paper Open PDF in Browser

Incentives, Targeting and Firm Performance: An Analysis of Non-Executive Stock Options

Review of Financial Studies, Forthcoming

44 Pages Posted: 15 Sep 2008 Last revised: 5 Feb 2016

Yael V. Hochberg

National Bureau of Economic Research (NBER); Rice University - Jesse H. Jones Graduate School of Business

Laura Anne Lindsey

Arizona State University (ASU) - Finance Department

Date Written: April 28, 2009

Abstract

We examine whether options granted to non-executive employees affect firm performance. Using new data on option programs, we explore the link between broad-based option programs, option portfolio implied incentives, and firm operating performance, utilizing an instrumental variables approach to identify causal effects. Firms whose employee option portfolios have higher implied incentives exhibit higher subsequent operating performance. Intuitively, the implied incentive-performance relation is concentrated in firms with fewer employees and in firms with higher growth opportunities. Additionally, the effect is concentrated in firms that grant options broadly to non-executive employees, consistent with theories of cooperation and mutual monitoring among co-workers.

Suggested Citation

Hochberg, Yael V. and Lindsey, Laura Anne, Incentives, Targeting and Firm Performance: An Analysis of Non-Executive Stock Options (April 28, 2009). Review of Financial Studies, Forthcoming. Available at SSRN: https://ssrn.com/abstract=1267393 or http://dx.doi.org/10.2139/ssrn.1267393

Yael V. Hochberg (Contact Author)

National Bureau of Economic Research (NBER) ( email )

1050 Massachusetts Avenue
Cambridge, MA 02138
United States

Rice University - Jesse H. Jones Graduate School of Business ( email )

6100 South Main Street
P.O. Box 1892
Houston, TX 77005-1892
United States

Laura Anne Lindsey

Arizona State University (ASU) - Finance Department ( email )

W. P. Carey School of Business
PO Box 873906
Tempe, AZ 85287-3906
United States

Paper statistics

Downloads
289
Rank
88,097
Abstract Views
1,246