Does Greater Risk-Bearing in Stock Option Compensation Reduce the Influence of Problem Framing On Managerial Risk-Taking Behavior?

2011 ◽  
Vol 23 (1) ◽  
pp. 185-201 ◽  
Author(s):  
Kimberly Sawers ◽  
Arnold Wright ◽  
Valentina Zamora
Keyword(s):  
Risk Taking ◽  
Stock Options ◽  
Stock Option ◽  
Money Stock ◽  
Agency Model ◽  
Problem Framing ◽  
Managerial Risk ◽  
Option Compensation ◽  
Behavioral Agency ◽  
Stock Option Compensation

ABSTRACT: We examine the extent to which the behavioral agency model reflects the relation between greater risk-bearing in stock option compensation and managerial risk-taking. The behavioral agency model predicts that managers with greater wealth at stake will avoid risky projects that threaten their wealth. This greater risk-bearing effect moderates the problem-framing effect, which predicts that loss-averse managers will be more (less) risk-taking when choosing among loss (gain) projects. Using a 2 × 2 between-subjects experiment with 108 M.B.A. students acting as managers, we find that managers are more risk-taking in the loss context than in the gain context when they have at-the-money stock options but not when they have wealth at stake through in-the-money stock options. Further, we find that managers with in-the-money stock options are less risk-taking than managers with at-the-money stock options in the loss context. These findings support the behavioral agency model prediction that greater risk-bearing in stock option compensation (moving from at-the-money stock options to in-the-money stock options) reduces the problem framing effect on risk-taking behavior, particularly when the firm faces a loss decision context. Our results point to the importance of considering the implications of risk-bearing in stock option compensation for managers choosing risky projects that affect firm value.

Are Stock Option Grants to Directors of State-Controlled Chinese Firms Listed in Hong Kong Genuine Compensation?

2013 ◽  
Vol 88 (5) ◽  
pp. 1547-1574 ◽  
Author(s):  
Zhihong Chen ◽  
Yuyan Guan ◽  
Bin Ke
Keyword(s):  
Hong Kong ◽  
Stock Options ◽  
Stock Option ◽  
Data Availability ◽  
Money Stock ◽  
Chinese Firms ◽  
Foreign Investors ◽  
Option Compensation ◽  
Jel Classifications ◽  
Stock Option Compensation

ABSTRACT: We examine the determinants and consequences of stock option compensation to directors of state-controlled Chinese firms that are incorporated outside China and listed in Hong Kong, referred to as state-controlled Red Chip firms, over the period 1990–2005. We find that state-controlled Red Chip firms granted directors a significant number of stock options in response to the demand of foreign investors. However, state-controlled Red Chip firms forced the directors to forfeit a significant percentage of their vested in-the-money stock options due to a conflict between the high-powered stock option compensation and state-controlled Red Chip firms' unique managerial labor market. We find little evidence that directors' stock option compensation changed the behavior of state-controlled Red Chip firms. Overall, our results are consistent with the media's allegation that the stock options granted to directors of many, if not all, state-controlled Red Chip firms are not genuine compensation. JEL Classifications: D21, G32, J33, M40, N25 Data Availability: Data used in this study are publicly available from the sources identified in the paper.

scholarly journals DAMPAK STRUKTUR MODAL PADA SENSITIVITAS PENERAPAN KOMPENSASI OPSI SAHAM KARYAWAN TERHADAP KINERJA

2017 ◽  
Vol 14 (1) ◽  
pp. 1
Author(s):  
Nur Fadjrih Asyik
Keyword(s):  
Firm Performance ◽  
Capital Structure ◽  
Stock Options ◽  
Stock Option ◽  
Company Performance ◽  
Employee Stock Option ◽  
Sensitivity Level ◽  
The Impact ◽  
Option Compensation ◽  
Stock Option Compensation

This study aims to test whether the management that receive compensation in the form of stock options having an positive impact on company performance. This study considers the external performance measurement by identifying Cumulative Abnormal Return (CAR). In addition, this study aims to test whether the company's capital structure affects the sensitivity level of employee stock option compensation and firm performance. Capital structure is measured with debt to equity ratio. The result indicates that the proportion of Employee Stock Option Plan (ESOP) influence company performance in accordance with the predictions. This shows that the more stock options offered to employees then came a sense of belonging which resulted in more motivated managers to improve company performance. Furthermore, the higher the market performance of companies that can be achieved, the higher the profit (gain) will be obtained by the recipient of stock options. In addition, this study also shows that the impact of stock option grants at the company's performance declined with the greater capital structure of liability. This shows that the capital structure of liabilities will lower the sensitivity level of employee stock option compensation and firm performance. The higher the company's liabilities would reduce the rights of the owner of the dividends each period in accordance with the ownership of shares held since the company must take into account the interest costs to be paid to the creditor.

scholarly journals DAMPAK STRUKTUR MODAL PADA SENSITIVITAS PENERAPAN KOMPENSASI OPSI SAHAM KARYAWAN TERHADAP KINERJA

2018 ◽  
Vol 14 (1) ◽  
Author(s):  
Nur Fadjrih Asyik
Keyword(s):  
Firm Performance ◽  
Capital Structure ◽  
Stock Options ◽  
Stock Option ◽  
Company Performance ◽  
Employee Stock Option ◽  
Sensitivity Level ◽  
The Impact ◽  
Option Compensation ◽  
Stock Option Compensation

This study aims to test whether the management that receive compensation in the form of stock options having an positive impact on company performance. This study considers the external performance measurement by identifying Cumulative Abnormal Return (CAR). In addition, this study aims to test whether the company's capital structure affects the sensitivity level of employee stock option compensation and firm performance. Capital structure is measured with debt to equity ratio. The result indicates that the proportion of Employee Stock Option Plan (ESOP) influence company performance in accordance with the predictions. This shows that the more stock options offered to employees then came a sense of belonging which resulted in more motivated managers to improve company performance. Furthermore, the higher the market performance of companies that can be achieved, the higher the profit (gain) will be obtained by the recipient of stock options. In addition, this study also shows that the impact of stock option grants at the company's performance declined with the greater capital structure of liability. This shows that the capital structure of liabilities will lower the sensitivity level of employee stock option compensation and firm performance. The higher the company's liabilities would reduce the rights of the owner of the dividends each period in accordance with the ownership of shares held since the company must take into account the interest costs to be paid to the creditor.

Stock option pay versus restricted stock: A comparative analysis of their impact on managerial risk-taking and performance extremeness

2018 ◽  
Vol 18 (2) ◽  
pp. 301-329 ◽  
Author(s):  
Wanrong Hou ◽  
Steve Lovett ◽  
Abdul Rasheed
Keyword(s):  
Comparative Analysis ◽  
Risk Taking ◽  
Stock Options ◽  
Stock Option ◽  
Large Sample ◽  
Managerial Risk ◽  
Ceo Tenure ◽  
Restricted Stock ◽  
And Performance ◽  
Using Data

This study investigates how two stock-based incentives affect the risk-taking behavior of CEOs. We compare stock options and restricted stock in terms of their impact on the magnitude of investments and performance extremeness. We test our hypotheses using data for 23 years starting from 1993 for a large sample of S&P 1500 firms. Our results indicate that both stock option and restricted stock pay increase the magnitude of investments undertaken by CEOs, but that stock options have a much stronger effect. Also, stock option pay increases the likelihood of both big gains and big losses, but restricted stock reduces the likelihood of big losses. Finally, we find that as CEO tenure increases, the effects of stock-based compensation tend to diminish. Therefore, stock-based incentives appear to be a useful solution to the agency problem for short-tenured CEOs, but much less so for long-tenured CEOs.

A Behavioral Agency Model of Managerial Risk Taking

1998 ◽  
Vol 23 (1) ◽  
pp. 133-153 ◽  
Author(s):  
Robert M. Wiseman ◽  
Luis R. Gomez-Mejia
Keyword(s):  
Risk Taking ◽  
Agency Model ◽  
Managerial Risk ◽  
Behavioral Agency
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