Corporate governance and the design of stock option contracts

Sautner, Zacharias ; Weber, Martin

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Document Type: Article
Year of publication: 2011
The title of a journal, publication series: Die Betriebswirtschaft : DBW
Volume: 71
Issue number: 4
Page range: 331-354
Place of publication: Stuttgart
Publishing house: Schäffer-Poeschel
ISSN: 0342-7064
Publication language: English
Institution: Business School > ABWL u. Finanzwirtschaft, insbes. Bankbetriebslehre (Weber 1993-2017)
Subject: 330 Economics
Classification: JEL: G32 , G34 , M52,
Keywords (English): Stock Option Programs , Program Design , Corporate Governance , Empirical Evidence
Abstract: We use unique and proprietary data to investigate the design of executive stock option (ESO) contracts of large European firms. We document a large heterogeneity in the ESO plan design. We then construct a score of the CEO friendliness of the plan design and study the relationship between this score and corporate governance structures. We find that firms with lower ownership concentration and fewer outsiders on the board have option plans that are more CEO friendly. We control for firm characteristics, industry and country fixed effects.We show that plans that are designed CEO friendly coincide with large volumes of CEO options and with excess CEO compensation. Consistent with a managerial power interpretation of our results and unlike predictions of an optimal contracting view, we find that firms with more friendly plans show a lower subsequent operating performance.

Dieser Eintrag ist Teil der Universitätsbibliographie.

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