Do executive stock option grants have value implications for firm performance?

Swee-Sum Lam () and Bey-Fen Chng ()

Review of Quantitative Finance and Accounting, 2006, vol. 26, issue 3, 249-274

Abstract: Consistent with predictions of agency theory, we find direct evidence that executive stock option grants have value implications for firm performance. This inference is drawn from evaluation of various motivations for the use of such grants in executive compensation: value enhancement, risk taking, tax benefit, signaling and cash conservation. We find consistent evidence for the value enhancement motivation to reduce agency costs. As well, they signal for positive price sensitive information. Our results reject the tax benefit and cash conservation motivations. This finding is robust after controlling for the endogenous character of executive stock option grants and other equity-based grants. Copyright Springer Science + Business Media, Inc. 2006

Keywords: Executive stock option grants; Compensation; Agency theory; Firm performance; Endogeneity (search for similar items in EconPapers)
Date: 2006
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Citations: View citations in EconPapers (15)

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DOI: 10.1007/s11156-006-7433-3

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