To Buy or Not to Buy?: The Effect of Option Granting on Executive Stock Purchases
55 Pages Posted: 15 Mar 2006 Last revised: 14 Apr 2010
There are 2 versions of this paper
To Buy or Not to Buy?: The Effect of Option Granting on Executive Stock Purchases
To Buy or Not to Buy?: The Effect of Option Granting on Executive Stock Purchases
Date Written: April 1, 2010
Abstract
Traditional portfolio diversification arguments suggest that if executives are granted options then they should hold less company stock than they would otherwise have done, diluting the incentive effects. There is little evidence, however, that companies do anything to prevent this and the anecdotal evidence does not seem to accord with traditional diversification arguments. We provide a model analyzing the effect of granting options on executive stock purchases and, in contrast to the traditional view, show that there is a natural complementarity between executive options and stock ownership, which, although intuitively straightforward, has not been identified before. The implications are explored.
Keywords: CEO compensation, managerial incentives, asymmetric information, corporate governance
JEL Classification: G30, G32, J33,
Suggested Citation: Suggested Citation
Here is the Coronavirus
related research on SSRN
Recommended Papers
-
Are CEOS Really Paid Like Bureaucrats?
By Brian J. Hall and Jeffrey B. Liebman
-
Are CEOS Really Paid Like Bureaucrats?
By Brian J. Hall and Jeffrey B. Liebman
-
The Other Side of the Tradeoff: The Impact of Risk on Executive Compensation
-
Good Timing: CEO Stock Option Awards and Company News Announcements
-
Good Timing: CEO Stock Option Awards and Company News Announcements
-
The Use of Equity Grants to Manage Optimal Equity Incentive Levels
By John E. Core and Wayne R. Guay
-
The Other Side of the Tradeoff: the Impact of Risk on Executive Compensation
-
Stock Options for Undiversified Executives
By Brian J. Hall and Kevin J. Murphy
