Stock option compensation mitigates stock price crash risk due to managerial overconfidence: Evidence from Korea

Na-Youn Kim and Juhan Lee

Finance Research Letters, 2025, vol. 77, issue C

Abstract: This study empirically examines the moderating effect of stock option compensation on the relationship between stock price crash risk and managerial overconfidence using data from listed firms in Korea between 2002 and 2020. Results show that delta of the price incentive component of stock option compensation is positively related to stock price crash risk, but the relationship is negative when we consider the interaction with managerial overconfidence. These findings suggest that a well-designed stock option compensation policy can effectively mitigate the negative impacts of CEO overconfidence on crash risk without additional internal control costs.

Keywords: CEO compensation; Crash risk; Delta; Managerial overconfidence; Stock options (search for similar items in EconPapers)
Date: 2025
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Persistent link: https://EconPapers.repec.org/RePEc:eee:finlet:v:77:y:2025:i:c:s1544612325003800

DOI: 10.1016/j.frl.2025.107117

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