The Trouble with Stock Options

Brian J. Hall and Kevin J. Murphy

No 9784, NBER Working Papers from National Bureau of Economic Research, Inc

Abstract: The trouble with options is that too many options are granted to too many people. Most options are granted below the top-executive level, and options are often an inefficient way to attract, retain and motivate executives and (especially) lower-level employees. Why, then, are options so prevalent? We discuss several explanations including changes in corporate governance, reporting requirements, taxes, the bull market and managerial rent-seeking. We also offer an alternative hypothesis that we believe explains the over-use of options and several apparent puzzles: boards and managers falsely perceive stock options to be inexpensive because of accounting and cash-flow considerations.

JEL-codes: J0 J3 (search for similar items in EconPapers)
Date: 2003-06
New Economics Papers: this item is included in nep-fin
Note: CF LS PE
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (231)

Published as Hall, Brian J. and Kevin J. Murphy. "The Trouble With Stock Options," Journal of Economic Perspectives, 2003, v17(3,Summer), 49-70.

Downloads: (external link)
http://www.nber.org/papers/w9784.pdf (application/pdf)

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:nbr:nberwo:9784

Ordering information: This working paper can be ordered from
http://www.nber.org/papers/w9784

Access Statistics for this paper

More papers in NBER Working Papers from National Bureau of Economic Research, Inc National Bureau of Economic Research, 1050 Massachusetts Avenue Cambridge, MA 02138, U.S.A.. Contact information at EDIRC.
Bibliographic data for series maintained by ().