Do Corporations Award CEO Stock Options Effectively

44 Pages Posted: 11 Nov 2008

See all articles by David Yermack

David Yermack

New York University (NYU) - Stern School of Business

Date Written: October 1994


This paper analyzes stock option wards to CEOs of 792 U.S. public corporations between 1984 and 1991. Using a Black-Scholes approach, I test whether stock options performance incentives have significant associations with explanatory variables related to agency cost reduction. Further tests examine whether the mix of compensations between stock options and cash pay can be explained by corporate liquidity, tax status, or earnings management. Results indicate that few agency or financial contracting theories have explanatory power for patterns of CEO stock option awards, a finding in accord with others conclusions that CEO pay arrangements do not reflect well the normative predictions of compensation theorists.

Suggested Citation

Yermack, David, Do Corporations Award CEO Stock Options Effectively (October 1994). NYU Working Paper No. FIN-94-054. Available at SSRN:

David Yermack (Contact Author)

New York University (NYU) - Stern School of Business ( email )

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