Executive Stock Options: To Expense or Not?

20 Pages Posted: 19 Jun 2006

See all articles by Sanjay Deshmukh

Sanjay Deshmukh

DePaul University - Department of Finance

Carl F. Luft

DePaul University - Department of Finance

Keith M. Howe

DePaul University - Department of Finance

Abstract

In analyzing the decision to expense stock options, we find a greater likelihood of options expensing for firms with greater transparency and a closer alignment of interests between managers and shareholders. These results provide indirect evidence that expensing is more likely in firms that practice good corporate governance. We show that firms are less likely to expense when option usage is higher and that this negative relation is stronger for firms that are smaller, have high growth, and are less profitable. We also find that the announcement period returns are not significantly different from zero.

Suggested Citation

Deshmukh, Sanjay and Luft, Carl F. and Howe, Keith M., Executive Stock Options: To Expense or Not?. Financial Management, Vol. 35, No. 1, Spring 2006. Available at SSRN: https://ssrn.com/abstract=909670

Sanjay Deshmukh (Contact Author)

DePaul University - Department of Finance ( email )

1 East Jackson Blvd.
Chicago, IL 60604-2287
United States
312-362-8472 (Phone)
312-362-6566 (Fax)

Carl F. Luft

DePaul University - Department of Finance ( email )

1 East Jackson Blvd.
Chicago, IL 60604-2287
United States

Keith M. Howe

DePaul University - Department of Finance ( email )

1 East Jackson Blvd.
Chicago, IL 60604-2287
United States
312-362-5126 (Phone)

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