But Is It Myopia? Risk Aversion and the Efficiency of Stock-Based Managerial Incentives

But Is It Myopia? Risk Aversion and the Efficiency of Stock-Based Managerial Incentives

In the managerial myopia literature the firm always faces some agency problem or other market imperfection. It is unclear whether the myopic behavior found in these models is due to stock-based incentives or the model's other market imperfections. This paper points out that stock incentives do not lead to myopia unless they result in more emphasis on the short-term than would occur under an opt...

Stock Based Compensation: Firm-specific risk, Efficiency and Incentives

We propose a continuous time utility maximization model to value stock and option compensation from the executive's perspective. We allow the executive to invest non-option wealth in the market and riskless asset but not in the company stock itself. This enables executives to adjust exposure to market risk, but they are subject to firm-specific risk for incentive purposes. Since the executive i...

Merger Efficiency and Managerial Incentives

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...

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 ...