STOCK OPTIONS AND MANAGERIAL INCENTIVES TO INVEST

Corporate Payout Policy and Managerial Stock Incentives*

We examine how corporate payout policy is affected by managerial stock incentives using data on more than 1100 nonfinancial firms during 1993-97. We find that management share ownership encourages higher payouts by firms with potentially the greatest agency problems—those with low market-to-book ratios and low management stock ownership. We also find that management stock options change the com...

Measuring managerial incentives to increase firm volatility provided by debt , stock , and options

A large literature uses the sensitivity of stock options to an increase in stock volatility (“vega”) as a proxy for managers’ risk-taking incentives. Vega captures the sensitivity of options to stock volatility, but ignores the fact the employee options are warrants. When an increase in volatility increases option value, the increase in option value comes from a decrease in the value of the sto...

Internet Appendix for “Stock Options and Managerial Incentives for Risk- Taking: Evidence from FAS 123R”

Stock Options and Managerial Incentives for Risk-Taking: Evidence from FAS 123R

We provide new evidence on the relationship between option-based compensation and risktaking behavior by exploiting the change in the accounting treatment of stock options following the adoption of FAS 123R in 2005. The implementation of FAS 123R represents an exogenous change in the accounting benefits of stock options that has no effect on the economic costs and benefits of options for provid...

Do Stock Options Overcome Managerial Risk Aversion? Evidence from Exercises of Executive Stock Options

We report that the probability that executives exercise options early decreases with the volatility of the underlying stock return. We interpret this to mean that executives’ subjective option value increases with volatility and that option grants increase executives’ risk appetite. Further decomposition reveals that the results are most pronounced for idiosyncratic volatility, consistent with ...