The Adoption and Structure of Executive Stock Option Plans

Abstract

The objective of this study is to examine the association of the firm's ownership structure and its investment opportunity set with the adoption of executive stock option plans and the minimum holding period for stock options. This study is carried out in a distinctive institutional environment, where there is a high level of block ownership and significant government ownership in many firms. Based on a sample of 158 publicly listed Singapore firms, the empirical findings indicate that firms with higher managerial ownership are less likely to adopt executive stock option plans and if they do, the minimum holding period is usually set shorter. Firms with higher blockholder ownership tend be less likely to adopt executive stock option plans and would prefer to set a longer waiting period. Government linked companies are more likely to adopt executive stock option plans. Lastly, the greater the growth opportunities, the more likely that the minimum holding period is set longer. This study controls for the effects of firm size, leverage ratio and the regulated industries.

JEL Classification: G32, J33