Stock Option Incentives and Firm Performance

51 Pages Posted: 27 Dec 2003

See all articles by Stephen A. Hillegeist

Stephen A. Hillegeist

Arizona State University (ASU) - W. P. Carey School of Business, School of Accountancy

Fernando Penalva

IESE Business School - University of Navarra

Date Written: December 2003

Abstract

This paper analyzes the performance consequences of employee stock options for a broad sample of firms during the period 1996-1999. Our tests are performed separately for the top-5 executives and all other employees. We estimate the expected level of option incentives based on each firm's economic characteristics. We examine the association between the unexpected level of option incentives and firm performance as measured by future abnormal returns, future return on assets, and current and future firm value (Tobin's Q). We find consistent evidence that firms with unexpectedly high levels of option incentives exhibit significantly higher levels of firm performance. The results hold for both Executives and Employees and are consistent across each of our three measures of firm performance.

Keywords: Employee stock options, financial performance, corporate governance

JEL Classification: G32, J33, L14, L22, M41

Suggested Citation

Hillegeist, Stephen A. and Penalva, Fernando, Stock Option Incentives and Firm Performance (December 2003). Available at SSRN: https://ssrn.com/abstract=480384 or http://dx.doi.org/10.2139/ssrn.480384

Stephen A. Hillegeist (Contact Author)

Arizona State University (ASU) - W. P. Carey School of Business, School of Accountancy ( email )

Tempe, AZ 85287-3706
United States
480-965-6614 (Phone)

Fernando Penalva

IESE Business School - University of Navarra ( email )

Ave. Pearson 21
Barcelona, Barcelona 08034
Spain
932534200 (Phone)
932534343 (Fax)

HOME PAGE: http://www.iese.edu

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