Why more restricted stocks,less stock options?--An explanation based on the preference of regulators of China? |
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Institution: | 1. School of Marxism, South China Normal University, Guangzhou, Guangdong 510631, China;2. School of Securities and Futures, Southwestern University of Finance and Economics, Chengdu 611130, China;3. International Business College, South China Normal University, Guangzhou, Guangdong 510631, China |
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Abstract: | This paper provides an empirical explanation of the more frequent use of restricted stock plans for executives than stock option plans, to reveal the determinants of a restricted stock plan and understand its subsequent effects. We find that firms with higher growth opportunity, smaller size, higher executive ownership, smaller rent-seeking probably, and dividend payment prefer to grant restricted stock plans. Moreover, the preference of regulators drives the tendency of using restricted stock plans, designed to have higher pay-performance sensitivity (delta) and lower pay-risk sensitivity (vega). Under the intensive regulation, the restricted stock plans designed by firms with executive ownerships and large agency debt costs are more sensitive to risk. As a result, granting restricted stock plans rather than stock options helps improve firm performance and the preference of regulators on restricted stock plans can also enhance firm performance and decrease firm risks. |
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Keywords: | Restricted stock Preference of regulators Vega Firm performance Firm risk |
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