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Determinants of the Introduction of Stock Options by Japanese Firms: Analysis from the Incentive and Selection Perspectives

Sadao Nagaoka

The Journal of Business, 2005, vol. 78, issue 6, 2289-2316

Abstract: This paper examines the determinants of the introduction of stock options in Japan, in response to their deregulation, from the incentive and selection perspectives. Younger firms use broad-based stock options more often, even after controlling firm size, growth, and the possibility of a liquidity constraint. Moreover, stock price volatility increases the adoption of stock options only when a firm is young. These results support the relevancy of a selection view that focuses on efficient project choice. Stock options are used more often by fast-growing firms and less in regulated industries and by the firms with concentrated ownership structure, consistent with both views.

Date: 2005
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