Executive stock options, stock price volatility, and agency costs in the Philippine setting

Clifford S. Ang () and Daniel Vincent H. Borja ()
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Clifford S. Ang: Olin School of Business, Washington University in St. Louis, USA
Daniel Vincent H. Borja: College of Business Administration, University of the Philippines Diliman, Quezon City

Philippine Review of Economics, 2003, vol. 40, issue 2, 117-124

Abstract: Firms compensate management with executive stock option plans to mitigate the agency problem arising from conflicts of interest between shareholders and managers. However, due to the nature of stock options, the value to the option holder increases when the volatility of the underlying stock rises. Unfortunately, the decisions that affect the expected future cash flows of the firm still remain under the control of executives. Using a pooled least squares regression on a sample of 30 PHISIX firms from the period 1998 to 2001, we find that the presence of executive stock option plans significantly affects the volatility of the firm’s stock return.

Keywords: Executive stock options; managerial compensation (search for similar items in EconPapers)
JEL-codes: M52 (search for similar items in EconPapers)
Date: 2003
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