Stock Option Exercise and Gift Exchange Relationships: Evidence for a Large Us Company

46 Pages Posted: 28 Feb 2011 Last revised: 5 Mar 2011

See all articles by Peter Cappelli

Peter Cappelli

University of Pennsylvania Wharton School - Center for Human Resources; National Bureau of Economic Research (NBER); University of Pennsylvania - Management Department

Martin J. Conyon

Lancaster University - Management School; Wharton School, Center for Human Resources

Date Written: February 2011

Abstract

We investigate gift exchange relationships in real jobs, making use of a field quasi-experiment associated with the exercise of stock options for roughly 4500 managers in a large public company. In this company, option grants are set equally for all employees within occupational categories, and financial markets set the price at which the options are ultimately exercised. We assert that the considerable variation that we observe across employees and over time in profits from those sales is beyond the control of the individual employee and can be thought of as effectively randomized. We also assert that employees perceive the profit they receive from exercising these options at least in part as the equivalent of a gift: Higher profits in turn cause them to reciprocate with better job performance in the subsequent period. We find significant and economically meaningful positive relationships between the variation in profit per share of the options sold and standard measures of subsequent job performance for individual employees. These effects exist in real jobs and persist over long periods, extending previous studies. Non-parametric and parametric fixed effects models, other controls for sample heterogeneity, and alternative specifications address possible concerns about the randomization assumption and associated statistical issues.

Suggested Citation

Cappelli, Peter and Conyon, Martin J., Stock Option Exercise and Gift Exchange Relationships: Evidence for a Large Us Company (February 2011). NBER Working Paper No. w16814. Available at SSRN: https://ssrn.com/abstract=1769512

Peter Cappelli (Contact Author)

University of Pennsylvania Wharton School - Center for Human Resources ( email )

3733 Spruce Street, Vance Hall
Philadelphia, PA 19104-6358
United States

HOME PAGE: http://www.wharton.upenn.edu/faculty/cappelli.html

National Bureau of Economic Research (NBER)

1050 Massachusetts Avenue
Cambridge, MA 02138
United States

University of Pennsylvania - Management Department ( email )

The Wharton School
Philadelphia, PA 19104-6370
United States

Martin J. Conyon

Lancaster University - Management School ( email )

Bailrigg
Lancaster, LA1 4YX
United Kingdom

Wharton School, Center for Human Resources ( email )

3600 Locust Walk
Philadelphia, PA 19104-6365
United States

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