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Non-Executive Employee Stock Options and Corporate Innovation

50 Pages Posted: 21 Nov 2011 Last revised: 6 Sep 2017

Xin (Simba) Chang

Nanyang Business School

Kangkang Fu

Nanyang Technological University (NTU)

Angie Low

Nanyang Technological University - Division of Banking & Finance

Wenrui Zhang

The Chinese University of Hong Kong (CUHK) - Department of Finance

Date Written: August 1, 2014

Abstract

We provide empirical evidence on the positive effect of non-executive employee stock options on corporate innovation. The positive effect is more pronounced when employees are more important for innovation, when free-riding among employees is weaker, when options are granted broadly to most employees, when the average expiration period of options is longer, and when employee stock ownership is lower. Further analysis reveals that employee stock options foster innovation mainly through the risk-taking incentive, rather than the performance-based incentive created by stock options.

Keywords: Employee Stock Options; Corporate Innovation; Risk-taking Incentives; Employee Compensation

JEL Classification: J33, M52, O31

Suggested Citation

Chang, Xin (Simba) and Fu, Kangkang and Low, Angie and Zhang, Wenrui, Non-Executive Employee Stock Options and Corporate Innovation (August 1, 2014). Journal of Financial Economics (JFE), Vol. 115, No. 1, 2015. Available at SSRN: https://ssrn.com/abstract=1962408 or http://dx.doi.org/10.2139/ssrn.1962408

Xin Chang

Nanyang Business School ( email )

S3-B1B-76 Nanyang Avenue
Singapore, 639798
Singapore

HOME PAGE: http://www.ntu.edu.sg/home/changxin

Kangkang Fu

Nanyang Technological University (NTU) ( email )

Nanyang Business School
S3-B2C PhD Office Nanyang Avenue
Singapore, 639798
Singapore

Angie Low

Nanyang Technological University - Division of Banking & Finance ( email )

Singapore, 639798
Singapore

Wenrui Zhang (Contact Author)

The Chinese University of Hong Kong (CUHK) - Department of Finance ( email )

Shatin, N.T.
Hong Kong

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