Reducing managers’ incentives to cannibalize: Managerial stock options when shareholders are diversified |
| |
Authors: | Alan Kraus Amir Rubin |
| |
Institution: | 1. Sauder Business School, University of British Columbia, 2053 Main Mall, Vancouver, BC, Canada V6T 1Z2;2. Faculty of Business Administration, Simon Fraser University, 8888 University Drive, Burnaby, BC, Canada V5A 1S6 |
| |
Abstract: | We analyze the relative advantage of option grants compared to stock compensation when shareholders are diversified. Our analysis recognizes a conflict that is largely neglected in the corporate finance literature. Shareholders want to maximize their portfolio value while capital budgeting rules direct managers to choose projects that maximize firm (equity) value. Options can reduce this conflict by motivating managers to avoid projects that enhance the value of one firm at the expense of another firm. Also, in our framework, relative performance evaluation destroys value for shareholders as it encourages firms to engage in cannibalistic activity. Consistent with the predictions of our model we find that firms with lower insider ownership, higher institutional ownership, and lower leverage tend to provide more option grants as compensation to their executives. |
| |
Keywords: | |
本文献已被 ScienceDirect 等数据库收录! |
|