The effect of optimal investment by stock options incentive under economic policy uncertainty

Na-Youn Kim and Juhan Lee

Applied Economics Letters, 2024, vol. 31, issue 18, 1836-1844

Abstract: This study shows that executive stock options are an effective compensation policy that takes corporate investment to the optimal level in the presence of unpredictable risk from economic policy uncertainty (EPU). We aim to explore whether stock options provide incentives for executives to choose a project that the optimal investment needs to be implemented. We use delta and vega as a proxy for price sensitivity and compensation sensitivity, respectively, to examine the interaction between executive stock options portfolio and EPU. We use delta for price sensitivity and vega for compensation sensitivity, respectively, to examine the interaction between executive stock options portfolio and EPU. Our analysis shows that a well-designed compensation structure motivates executives to maintain the optimal investment level when faced with unpredictable risks.

Date: 2024
References: Add references at CitEc
Citations:

Downloads: (external link)
http://hdl.handle.net/10.1080/13504851.2023.2208329 (text/html)
Access to full text is restricted to subscribers.

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:taf:apeclt:v:31:y:2024:i:18:p:1836-1844

Ordering information: This journal article can be ordered from
http://www.tandfonline.com/pricing/journal/RAEL20

DOI: 10.1080/13504851.2023.2208329

Access Statistics for this article

Applied Economics Letters is currently edited by Anita Phillips

More articles in Applied Economics Letters from Taylor & Francis Journals
Bibliographic data for series maintained by Chris Longhurst ().