The Effect of Executive Stock Option Delta and Vega on the Spin-Off Decision

47 Pages Posted: 12 Nov 2018

See all articles by Mieszko Mazur

Mieszko Mazur

Catholic University of Lille - IESEG School of Management

Galla Salganik-Shoshan

Ben-Gurion University of the Negev

Date Written: May 2018

Abstract

We investigate the role of CEO incentives around asset restructuring known as corporate spin-off. More specifically, we focus on executive stock option delta and vega vis-à-vis changes in firm value and firm riskiness in response to the corporate spin-off. Controlling for self-selection of the spin-off decision, we find that executive stock option vega is positively related to changes in firm value as well as changes in firm risk. Conversely, we find that executive stock option delta is negatively related to changes in firm value and firm risk. Finally, we estimate the Fazzari, Hubbard, and Petersen (1988) investment model and show that at the business segment level, CEO incentives are positively linked to capital spending. Overall, our study extends the current literature by documenting the role of executive stock option delta and vega in the context of corporate spinoff.

Keywords: spin-off, spinoff, divestiture, executive compensation, executive stock option delta, executive stock option vega, firm value, firm risk

JEL Classification: J33, G32, G34

Suggested Citation

Mazur, Mieszko and Salganik-Shoshan, Galla, The Effect of Executive Stock Option Delta and Vega on the Spin-Off Decision (May 2018). Quarterly Review of Economics and Finance, Forthcoming. Available at SSRN: https://ssrn.com/abstract=3283052

Mieszko Mazur (Contact Author)

Catholic University of Lille - IESEG School of Management ( email )

3 Rue de la Digue
Office: A321
Puteaux, 92800
France

Galla Salganik-Shoshan

Ben-Gurion University of the Negev ( email )

Beer Sheva
Israel

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