The Propensity to Split and CEO Compensation

Posted: 4 May 2016

See all articles by Erik Devos

Erik Devos

University of Texas at El Paso - College of Business Administration - Department of Economics and Finance

William B. Elliott

John Carroll University

Richard S. Warr

North Carolina State University

Date Written: May 4, 2016

Abstract

We analyze the relation between the delta and vega of a CEO's compensation and the propensity of the firm to engage in a split. Controlling for other well-known factors, we find that CEOs with compensation that has higher levels of delta are more likely to split their shares. Furthermore, the choice of split factor is inversely related to delta and directly related to vega, a result driven by the volatility effect of stock splits. Our results are economically significant: for the average firm in our sample, a stock split results in a CEO wealth gain of $4.9 million.

Keywords: Stock Splits, Executive Compensation, Managerial Incentives

JEL Classification: G14, G32, J33

Suggested Citation

Devos, Erik and Elliott, William B. and Warr, Richard S., The Propensity to Split and CEO Compensation (May 4, 2016). Available at SSRN: https://ssrn.com/abstract=2774883

Erik Devos

University of Texas at El Paso - College of Business Administration - Department of Economics and Finance ( email )

500 W. University Ave.
El Paso, TX 79968
United States
915 747 7770 (Phone)

HOME PAGE: http://utminers/utep.edu/hdevos

William B. Elliott

John Carroll University ( email )

University Heights, OH 44118
United States

Richard S. Warr (Contact Author)

North Carolina State University ( email )

BOX 7229
Raleigh, NC 27695-7229
United States
919-513-4646 (Phone)
919-515-6943 (Fax)

HOME PAGE: http://www4.ncsu.edu/~rswarr/

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