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Do executive stock option grants have value implications for firm performance?
Authors:Swee-Sum Lam  Bey-Fen Chng
Institution:(1) Department of Finance and Accounting, The NUS Business School, National University of Singapore, 117592, Singapore;(2) ExxonMobil Asia Pacific Pte Ltd, Singapore
Abstract:Consistent with predictions of agency theory, we find direct evidence that executive stock option grants have value implications for firm performance. This inference is drawn from evaluation of various motivations for the use of such grants in executive compensation: value enhancement, risk taking, tax benefit, signaling and cash conservation. We find consistent evidence for the value enhancement motivation to reduce agency costs. As well, they signal for positive price sensitive information. Our results reject the tax benefit and cash conservation motivations. This finding is robust after controlling for the endogenous character of executive stock option grants and other equity-based grants. JEL Classification G32 • J33 • M52
Keywords:Executive stock option grants  Compensation  Agency theory  Firm performance  Endogeneity
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