Corporate Life Cycle and CEO Stock Options Grants

38 Pages Posted: 2 Jan 2006

See all articles by Kiridaran (Giri) Kanagaretnam

Kiridaran (Giri) Kanagaretnam

York University - Schulich School of Business

Gerald J. Lobo

University of Houston - C.T. Bauer College of Business

Emad Mohammad

McMaster University - Accounting & Financial Management Services

Date Written: December 2005

Abstract

We document that the relation between the proportion of stock options in CEOs' compensation and its economic determinants identified in prior research is more pronounced for firms in the growth stage of their life cycle than for firms in their stagnant and mature stages. We also document that firms in their growth stage earn significantly more than one dollar in future operating income for each dollar of stock options granted to their CEOs, whereas stagnant and mature firms do not. These results suggest that stock options grants to CEOs of firms in their growth stage have an incentive alignment effect as predicted by agency theory. On the other hand, stock options grants to CEOs of firms in their stagnant and mature stages do not provide equity holders with incremental benefits.

Keywords: Executive compensation, stock options, life cycle, incentives, performance

Suggested Citation

Kanagaretnam, Kiridaran and Lobo, Gerald J. and Mohammad, Emad, Corporate Life Cycle and CEO Stock Options Grants (December 2005). CAAA 2006 Annual Conference Paper, Available at SSRN: https://ssrn.com/abstract=873088 or http://dx.doi.org/10.2139/ssrn.873088

Kiridaran Kanagaretnam (Contact Author)

York University - Schulich School of Business ( email )

4700 Keele Street
Toronto, Ontario M3J 1P3
Canada

Gerald J. Lobo

University of Houston - C.T. Bauer College of Business ( email )

Houston, TX 77204-6021
United States
713-743-4838 (Phone)
713-743-4828 (Fax)

HOME PAGE: http://www.bauer.uh.edu/acct/acctprofile.asp?search=Gerald%20Lobo

Emad Mohammad

McMaster University - Accounting & Financial Management Services ( email )

1280 Main Street West
Hamilton, Ontario L8S 4M4
Canada
905-525-9140 ext. 27432 (Phone)
905-521-8995 (Fax)

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