Review of Financial Studies, Forthcoming
44 Pages Posted: 15 Sep 2008 Last revised: 5 Feb 2016
Date Written: April 28, 2009
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: 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
By Kevin Murphy