Stock option schemes and firm technical inefficiency: Evidence from Finland

Abstract

Many firms in many countries started to issue stock option schemes to their employees in the 1990s (Murphy, 1999).¹ In the course of time, the mushrooming of schemes has generated a heated public debate on the pros and cons of this compensation method. In one camp are those who argue that stock options are nothing more but a compensation mechanism by which managers transfer excessive fortunes to themselves without a real enhancement in firm performance. On the other hand, proponents underline that options provide managers and employees financial incentives to make better decisions, work harder, and share valuable information in a way that enhance firm performance. Thus, they see options – more or less– as a major innovation in managerial and personnel compensation (or more generally in human resource management). However, at the moment there is no theoretical or empirical consensus how stock options and managerial equity ownership affect firm performance in economic literature (Core, Guay, & Larcker, 2003).

Citation

Mäkinen, M. (2010), "Stock option schemes and firm technical inefficiency: Evidence from Finland", Eriksson, T. (Ed.) Advances in the Economic Analysis of Participatory & Labor-Managed Firms (Advances in the Economic Analysis of Participatory & Labor-Managed Firms, Vol. 11), Emerald Group Publishing Limited, Leeds, pp. 137-160. https://doi.org/10.1108/S0885-3339(2010)0000011010