Social Capital and CEO Equity Incentive Duration

Posted: 8 Jul 2021 Last revised: 15 Jul 2021

See all articles by Zhenjiang Gu

Zhenjiang Gu

NEOMA Business School

Jeong-Bon Kim

City University of Hong Kong

Louise Yi Lu

Australian National University

Yangxin Yu

City University of Hong Kong

Date Written: July 7, 2021

Abstract

In this study, we examine the impact of social capital surrounding firms’ headquarters on their CEOs’ equity incentive duration. Using a measure that explicitly accounts for the length of stock and option grants’ vesting schedules (Gopalan et al. 2014, 2021), our analyses reveal that CEOs’ equity incentive duration increases with the level of social capital in the county where their firms are headquartered. We further find that this effect is more pronounced for firms with lower institutional ownership and for firms with lower board independence. Our results are robust to a variety of additional tests and to the use of a reduced sample of firms that relocate their headquarters to different communities with differing levels of social capital. Overall, our results are consistent with the view that social capital incentivizes CEOs and firms to be long-term oriented and refrain from short-term opportunistic activities, and this lengthens CEO equity incentive duration.

Keywords: social capital; executive compensation; equity incentive duration

JEL Classification: G30, M12, Z13

Suggested Citation

Gu, Zhenjiang and Kim, Jeong-Bon and Lu, Louise Yi and Yu, Yangxin, Social Capital and CEO Equity Incentive Duration (July 7, 2021). Available at SSRN: https://ssrn.com/abstract=3881495

Zhenjiang Gu

NEOMA Business School ( email )

1 Rue du Maréchal Juin
Mont-Saint-Aignan, 76130
France

Jeong-Bon Kim

City University of Hong Kong ( email )

Department of Accountancy
83 Tat Chee Avenue
Kowloon Tong
Hong Kong
852-3442-7909 (Phone)

Louise Yi Lu

Australian National University ( email )

Yangxin Yu (Contact Author)

City University of Hong Kong ( email )

Hong Kong

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