How Employee Stock Options and Executive Equity Ownership Affect Long-Term IPO Stock Prices and Operating Performance

Posted: 16 Jan 2009

See all articles by Kuntara Pukthuanthong

Kuntara Pukthuanthong

University of Missouri, Columbia

Richard Roll

California Institute of Technology

Thomas John Walker

Concordia University, Quebec - Department of Finance

Date Written: January 13, 2009

Abstract

This paper examines the longer-term performance of IPOs for several years (up to five years) after the expiration of the stabilization period. It seeks to determine whether the form of managerial compensation affects long-term performance after controlling for other influential factors previously uncovered in the IPO and compensation literature, such as executive cash compensation, profitability, age, size, venture capital backing, underwriter ranking, industry, book-to-market, analyst growth forecasts, and underpricing. We find that the performance of new public companies is best for companies that grant a combination of stock options and equity ownership. We offer a theoretical explanation for this result based on managerial risk aversion and the alignment of managerial and owner incentives.

Keywords: Initial public offerings, Stock options, Executive compensation

JEL Classification: G12, G32, J33

Suggested Citation

Pukthuanthong, Kuntara and Roll, Richard W. and Walker, Thomas John, How Employee Stock Options and Executive Equity Ownership Affect Long-Term IPO Stock Prices and Operating Performance (January 13, 2009). Journal of Corporate Finance, Vol. 13, 2007, Available at SSRN: https://ssrn.com/abstract=1326787

Kuntara Pukthuanthong (Contact Author)

University of Missouri, Columbia ( email )

Robert J. Trulaske, Sr. College of Business
403 Cornell Hall
Columbia, MO 65211
United States
6198076124 (Phone)

HOME PAGE: http://https://kuntara.weebly.com

Richard W. Roll

California Institute of Technology ( email )

1200 East California Blvd
Mail Code: 228-77
Pasadena, CA 91125
United States
626-395-3890 (Phone)
310-836-3532 (Fax)

Thomas John Walker

Concordia University, Quebec - Department of Finance ( email )

Montreal, Quebec H3G 1M8
Canada

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