Are CEO stock option grants optimal? Evidence from family firms and non-family firms around the Sarbanes–Oxley Act

Hongfei Tang ()

Review of Quantitative Finance and Accounting, 2014, vol. 42, issue 2, 292 pages

Abstract: This paper investigates the optimality of stock option grants to Chief Executive Officers (CEOs) by examining a set of S&P 500 companies around the passage of the Sarbanes–Oxley Act (SOX). I find that stock option grants to non-founding-family CEOs decreased dramatically after the passage of SOX. In addition, non-family firms granted significantly more stock options than family firms before the SOX, but not after its passage. These findings are consistent with the interpretation that CEOs use stock option grants as tools to extract rents from shareholders. This interpretation is further supported by evidence that the large decrease in stock option grants after the SOX was passed is not detrimental to firm performance, and by evidence from a test of the trade-off between option and non-option compensation. Copyright Springer Science+Business Media New York 2014

Keywords: Stock option grants; CEO compensation; The Sarbanes–Oxley Act; Managerial power; Optimal contracting theory; Family firms; G30; G34 (search for similar items in EconPapers)
Date: 2014
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Citations: View citations in EconPapers (4)

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DOI: 10.1007/s11156-012-0341-9

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