Download or read book The Impact of Executive Stock Options on Managerial Risk Taking written by Yenn-Ru Chen and published by . This book was released on 2003 with total page 310 pages. Available in PDF, EPUB and Kindle. Book excerpt:
Download or read book Executive Stock Options and Risk taking written by Wenli Huang and published by . This book was released on 2005 with total page 158 pages. Available in PDF, EPUB and Kindle. Book excerpt:
Download or read book Executive Stock Options written by Lee W. Sanning and published by . This book was released on 2006 with total page 103 pages. Available in PDF, EPUB and Kindle. Book excerpt:
Download or read book Executive Stock Options written by Neil Brisley and published by . This book was released on 2001 with total page pages. Available in PDF, EPUB and Kindle. Book excerpt:
Download or read book Executive Stock Options written by Neil Brisley and published by . This book was released on 2008 with total page pages. Available in PDF, EPUB and Kindle. Book excerpt: Traditional executive stock option plans allow fixed numbers of options to vest periodically, independent of stock price performance. Because such options may climb deep in-the-money long before the manager can exercise them, they can exacerbate risk aversion in project selection. Making the proportion of options that vest a gradually increasing function of the stock price can ensure that appropriate numbers of options are retained while they provide risk-taking incentives, but are exercised once they have lost their convexity. Progressive performance vesting can allow the firm more efficiently to rebalance the manager's risk-taking incentives.
Download or read book Executive Stock Options written by Sharon Hannes and published by . This book was released on 2017 with total page 34 pages. Available in PDF, EPUB and Kindle. Book excerpt: Executive compensation has undergone a radical shift in the United States over the last two decades, from a cash-based system to a stock-based system. This shift, which was intended to improve firm performance, is often said to have two major shortcomings: it drives managers to engage in manipulative practices, and it generates excessive risk taking. Some scholars consider these problems to be so severe that they blame the former for the wave of Enron-style fraud cases in 2001 and 2002 and the latter for the 2007 to 2010 financial crisis. Interestingly, to date, no one has investigated the interaction between these two types of adverse incentives for manipulation and risk taking. This Article seeks to fill this void.The bottom line of this Article's analysis is that regulators should always couple anti-fraud measures with risk-restraining measures. This policy was not espoused in recent history: the regulation enacted in the United States in the wake of the Enron crisis imposed severe anti-fraud measures, yet these were only coupled with risk-restraining measures in 2010, after another mega-crisis occurred. We show here that managers compensated in stock options and similar devices face a tradeoff between these two undesirable courses of action-manipulation and excessive risk taking-both of which generate benefits for managers at the expense of shareholders. In other words, greater manipulation could, remarkably, restrain excessive risk taking. Part of the explanation for this outcome is, in intuitive terms, that a manipulative manager will not want to jeopardize the fruits of her manipulative wrongdoing by taking on too much risk. Therefore, when regulation improves disclosure and impedes manipulation, risk taking may erupt.
Download or read book Executive Stock Options and Managerial Risk taking Incentives written by Troels Boysen and published by . This book was released on 2009 with total page 105 pages. Available in PDF, EPUB and Kindle. Book excerpt:
Download or read book Managerial Risk Taking Incentives and Executive Stock Option Repricing written by Daniel A. Rogers and published by . This book was released on 2009 with total page pages. Available in PDF, EPUB and Kindle. Book excerpt: I examine the relation between managerial incentives from holdings of company stock and options and stock option repricing. Because options provide incentives to increase both risk and stock price, firms must realize that as options go underwater, executives might face incentives to invest in risky, negative NPV projects. Repricing may alleviate such incentives. I examine repricing activity by firms in the U.S. gaming industry and find that risk-taking incentives from options are positively related to the incidence of executive option repricing. The results support the hypothesis that repricing assists firms in alleviating excessive risk-taking incentives of senior management.
Download or read book Executive Stock Options and Leverage written by Lee W. Sanning and published by . This book was released on 2003 with total page 41 pages. Available in PDF, EPUB and Kindle. Book excerpt: Executive stock options as a form of managerial compensation have come under intense scrutiny in recent months. Agency theory has held that options granted to executives should resolve some conflicts between managers and stockholders (Jensen and Meckling, 1976, and Haugen and Senbet, 1981). Yet recent events highlight the additional and perverse incentives that executive stock options can create. The role that executive options may have played in the collapse of firms like Enron is currently being debated in the popular press as well as by legislators and regulatory officials. Testifying before congress, Alan Greenspan recently said quot;there has been a severance, in my judgment, of the interests of the chief executive officer in many corporations from those of the shareholdersquot; (February 27, 2002). This severance can lead to risk taking by the corporate manager, beyond that preferred by the shareholders. One such type of risk taking is the increased use of financial leverage. Prior empirical research documents a positive contemporaneous relationships between executive options and leverage. These studies argue that executive options induce risk taking on the part of the manager and so interpret this finding as an indication that higher option grants cause higher leverage. I explicitly test for a causal relationship between executive options and leverage. I find that executive options cause financial risk taking when there is low institutional monitoring (ownership). However, for high institutional ownership, I find that this is not the case. Rather, following increases in firm risk (leverage), managers are granted additional stock options, consistent with optimal contracting and the empirical predictions of Choe (2001) and, more generally, the asset substitution hypothesis of Meyers (1977). Taken together, these results suggest that for some firms, the use of executive option may be efficient from the standpoint of shareholders.
Download or read book Can Employee Stock Options Contribute to Less Risk Taking written by Bruce K. Billings and published by . This book was released on 2019 with total page pages. Available in PDF, EPUB and Kindle. Book excerpt: The executive compensation literature presumes that shareholders offer risk-averse managers stock options to entice them to take on more risk, resulting in riskier investment decisions and thus a greater return on investment. However, recent empirical work challenges this assumption, and theoretical research even argues that high levels of option-based compensation for generally under-diversified managers may actually lead to greater risk aversion. We evaluate the incentive structure of employee stock options by examining the level of R&D investment and the return on that investment conditional on the portfolio “vega”, which captures the sensitivity of option value to stock price volatility. Our results suggest that both investment in R&D and the return on R&D, as measured by future earnings and patent awards, varies concavely with vega. That is, low to moderate levels of vega correspond to increasing investment in and returns on R&D, consistent with vega inducing more profitable investments, but marginal returns decline as vega increases. Collectively, these results, bolstered by several supplemental analyses, suggest that this surprising relation between vega and risky investment is driven by greater risk aversion at higher levels of vega. Overall, our results imply that employee stock options may not always align the incentives of manager and shareholders.
Download or read book Managerial Risk Taking Incentives and Executive Stock Option Repricing written by Daniel A. Rogers and published by . This book was released on 2005 with total page 46 pages. Available in PDF, EPUB and Kindle. Book excerpt: In this study, I examine the relation between managerial incentives from holdings of company stock and options and stock option repricing. Specifically, given that options provide both incentives to increase risk as well as stock price, firms must be cognizant that executives may increasingly face incentives to invest in risky, negative NPV projects, as options go underwater. Repricing may serve as a mechanism to alleviate such incentives. The study examines repricing activity by firms in the U.S. gaming industry during 1993-1998. I find that, in both firm-level and executive-level analyses, risk-taking incentives from options are positively related to the incidence of executive option repricing. The results are supportive of the hypothesis that repricing assists firms in alleviating excessive risk-taking incentives of senior management.
Download or read book Empirical Evidence on the Relation between Stock Option Compensation and Risk Taking written by Shivaram Rajgopal and published by . This book was released on 2003 with total page 39 pages. Available in PDF, EPUB and Kindle. Book excerpt: We examine whether executive stock options (ESO) encourage managers to make risky investments on behalf of shareholders. For a sample of oil and gas producers, we find, as predicted, that the variance of cash flows from exploration activity and the extent of price risk exposure hedged are positively associated with the sensitivity of CEO's options to equity risk. Thus, ESOs appear to motivate managers to take on exploration risk. Moreover, ESOs appear to induce CEOs to hedge oil price risk to avoid under-investment in exploration projects.
Download or read book The Handbook of the Economics of Corporate Governance written by Benjamin Hermalin and published by Elsevier. This book was released on 2017-09-18 with total page 762 pages. Available in PDF, EPUB and Kindle. Book excerpt: The Handbook of the Economics of Corporate Governance, Volume One, covers all issues important to economists. It is organized around fundamental principles, whereas multidisciplinary books on corporate governance often concentrate on specific topics. Specific topics include Relevant Theory and Methods, Organizational Economic Models as They Pertain to Governance, Managerial Career Concerns, Assessment & Monitoring, and Signal Jamming, The Institutions and Practice of Governance, The Law and Economics of Governance, Takeovers, Buyouts, and the Market for Control, Executive Compensation, Dominant Shareholders, and more. Providing excellent overviews and summaries of extant research, this book presents advanced students in graduate programs with details and perspectives that other books overlook. Concentrates on underlying principles that change little, even as the empirical literature moves on Helps readers see corporate governance systems as interrelated or even intertwined external (country-level) and internal (firm-level) forces Reviews the methodological tools of the field (theory and empirical), the most relevant models, and the field’s substantive findings, all of which help point the way forward
Download or read book Executive Compensation and Business Policy Choices at U S Commercial Banks written by Robert DeYoung and published by . This book was released on 2019 with total page 45 pages. Available in PDF, EPUB and Kindle. Book excerpt: This study examines whether and how the terms of CEO compensation contracts at large, publicly traded commercial banks between 1994 and 2006 influenced, and were influenced by, the risk-profiles of these firms. We find evidence linking contractual risk-taking incentives, which we proxy with standard measures of vega and delta, to risk-increasing business policy choices. Moreover, these linkages became stronger after 1999, when financial industry deregulation created new growth opportunities for commercial banks. Our results suggest that compensation committees provided new incentives for bank CEOs to exploit these growth opportunities, and also to shift from traditional on-balance sheet portfolio lending to less traditional investments (e.g., private-issue mortgage-backed securities) and nontraditional fee-generating activities. Apart from these strategic reallocations, our results also suggest that bank boards designed CEO compensation contracts to limit excessive risk taking, especially after deregulation.
Download or read book Employee Stock Option Compensation written by Florian Wolff and published by Springer Science & Business Media. This book was released on 2012-12-06 with total page 263 pages. Available in PDF, EPUB and Kindle. Book excerpt: Florian Wolff analyses how executives perceive their stock options and how their personal expectations and risk preferences affect the value they assign to them. He shows that stock options may be worth their money because people behave irrationally.
Download or read book Pay Without Performance written by Lucian A. Bebchuk and published by Harvard University Press. This book was released on 2004 with total page 308 pages. Available in PDF, EPUB and Kindle. Book excerpt: The company is under-performing, its share price is trailing, and the CEO gets...a multi-million-dollar raise. This story is familiar, for good reason: as this book clearly demonstrates, structural flaws in corporate governance have produced widespread distortions in executive pay. Pay without Performance presents a disconcerting portrait of managers' influence over their own pay--and of a governance system that must fundamentally change if firms are to be managed in the interest of shareholders. Lucian Bebchuk and Jesse Fried demonstrate that corporate boards have persistently failed to negotiate at arm's length with the executives they are meant to oversee. They give a richly detailed account of how pay practices--from option plans to retirement benefits--have decoupled compensation from performance and have camouflaged both the amount and performance-insensitivity of pay. Executives' unwonted influence over their compensation has hurt shareholders by increasing pay levels and, even more importantly, by leading to practices that dilute and distort managers' incentives. This book identifies basic problems with our current reliance on boards as guardians of shareholder interests. And the solution, the authors argue, is not merely to make these boards more independent of executives as recent reforms attempt to do. Rather, boards should also be made more dependent on shareholders by eliminating the arrangements that entrench directors and insulate them from their shareholders. A powerful critique of executive compensation and corporate governance, Pay without Performance points the way to restoring corporate integrity and improving corporate performance.
Download or read book Impact of Risk and Sentiment on Executive Stock Options and Exercise Decision written by 陳麗君 and published by . This book was released on 2011 with total page pages. Available in PDF, EPUB and Kindle. Book excerpt:
