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Abstract

Details

Corporate Fraud Exposed
Type: Book
ISBN: 978-1-78973-418-8

Article
Publication date: 9 August 2023

Sedki Zaiane, Halim Dabbou and Mohamed Imen Gallali

The purpose of this study is to examine the nonlinear relationship between financial constraints and the chief executive officer (CEO) stock options compensation and to analyze…

Abstract

Purpose

The purpose of this study is to examine the nonlinear relationship between financial constraints and the chief executive officer (CEO) stock options compensation and to analyze whether the impact of financial constraints on the CEO stock options compensation changes at certain level of financial constraints or not.

Design/methodology/approach

This study is based on a sample of 90 French firms for the period extending from 2008 to 2019. To deal with the non-linearity, the authors use a panel threshold method.

Findings

Using different measures of financial constraints [KZ index (Baker et al., 2003), SA index (Hadlock and Pierce, 2010) and FCP index (Schauer et al., 2019)], the results reveal that the impact of the financial constraints (SA index and FCP index) is positive below the threshold value and it becomes negative above.

Research limitations/implications

The non-linearity between financial constraints and CEO stock options shows that the level of financial constraints can be a major determinant of the CEO compensation structure. More specifically, this study sheds light on the key role played by the level of financial constraints and how this latter influence management decisions.

Originality/value

This paper is the first to the best of the authors' knowledge to examine the nonlinear relationship between financial constraints and the CEO stock options compensation using a panel threshold model.

Details

EuroMed Journal of Business, vol. ahead-of-print no. ahead-of-print
Type: Research Article
ISSN: 1450-2194

Keywords

Article
Publication date: 9 July 2018

Krista Lewellyn

The purpose of this paper is to draw from regulatory focus theory, to examine the effects of the “gain/no gain” nature of stock options and retirement pay on the decision to…

Abstract

Purpose

The purpose of this paper is to draw from regulatory focus theory, to examine the effects of the “gain/no gain” nature of stock options and retirement pay on the decision to engage in cross-border acquisitions. The moderating effects of managerial discretion arising from the external industry context and internal organizational leadership structure are also examined.

Design/methodology/approach

The authors employ random effects negative binomial regression analysis with a longitudinal (2006–2016) data set of US public companies operating in four industries with differing levels of industry discretion: the oil and gas, paper and packaging, aerospace and defense, and telecommunications.

Findings

The findings indicate that both CEO in-the-money stock options and retirement pay are positively related to cross-border acquisition activity. The results also demonstrate that managerial discretion, arising from the firm’s external industry context, accentuates the positive relationship between both the value of CEO in-the-money stock options and retirement pay with cross-border acquisition activity.

Practical implications

The findings provide implication for practice as understanding how retirement pay and stock options, both of which make up a substantial portion of overall CEO pay in the USA, motivate cross-border acquisition activity, may improve decisions by executives. The evidence also provides guidance to boards of directors who are charged with the responsibility of creating CEO compensation contracts.

Originality/value

The paper fills important gaps in the existing research on the influence of compensation elements on firm outcomes, by offering a novel explanation for how in-the-money stock options and retirement pay affect CEOs’ motivations to engage in cross-border acquisitions.

Details

Journal of Strategy and Management, vol. 11 no. 3
Type: Research Article
ISSN: 1755-425X

Keywords

Article
Publication date: 10 April 2018

Gun Jea Yu and Joonkyum Lee

The purpose of this paper is to investigate the contrasting moderating effect of a firm’s exploration on the relationship between the two types of long-term incentives (stock…

Abstract

Purpose

The purpose of this paper is to investigate the contrasting moderating effect of a firm’s exploration on the relationship between the two types of long-term incentives (stock options/stock ownership) for the chief executive officers and a firm’s long-term performance. Even though the two types of incentives are designed to improve long-term performance, the degrees of impact on long-term performance differ. Based on behavioral agency theory, this study theoretically and empirically examines the role of a firm’s exploration on the above relationship.

Design/methodology/approach

This study used three archival sources to obtain data on stock options, stock ownership, patents and exploration, financial measures, and others. Based on a sample of 1,963 firms in various industries from 1995 to 2006, this study tested the moderating effect of a firm’s exploration on the relationship between stock options/ownership and a firm’s performance.

Findings

This study reveals the contrasting moderating effect of a firm’s exploration on the relationship between stock options/ownership and a firm’s long-term performance: a positive moderating effect on the relationship between stock options and performance and a negative moderating effect on the relationship between stock ownership and performance. In addition, empirical evidence was added on the inverted U-shaped relationship between stock ownership and a firm’s long-term performance.

Originality/value

There is little research on a firm’s internal characteristics that strengthen or weaken the effects of stock options and stock ownership on firm performance. This study demonstrates the differential moderating effects of exploration on the relationship between stock options/stock ownership and long-term performance. Such effects of exploration come from the different risk features of stock options and stock ownership. The key implication is that stock options could be more effective than stock ownership to enhance a firm’s long-term performance when a firm has a strong exploration orientation.

Details

Management Decision, vol. 56 no. 9
Type: Research Article
ISSN: 0025-1747

Keywords

Article
Publication date: 19 October 2015

John S. Marsh, William J. Wales, Rachel Graefe-Anderson and Marshall W. Pattie

The purpose of this study is to explore post-acquisition compensation management and examine how the two most commonly used theories to explain CEO stock option exercise, agency…

Abstract

Purpose

The purpose of this study is to explore post-acquisition compensation management and examine how the two most commonly used theories to explain CEO stock option exercise, agency theory and CEO overconfidence, expect CEOs to manage their stock options following an acquisition.

Design/methodology/approach

Using logistic regression analysis, the authors investigate whether CEOs are more or less likely to exercise options following an acquisition, and the effect which CEO tenure and acquisition history may have on option exercise.

Findings

The results suggest that CEOs are more likely to exercise options following an acquisition. The authors also find that CEO tenure and acquisition experience are both linked to an increase in option exercise.

Research limitations/implications

The findings suggest that future research should expect agency effects to outweigh overconfidence effects when considering CEO stock option exercise behavior within the post-acquisition firm context.

Practical implications

This paper advises directors and shareholders about whether agency concerns or overconfidence are of greater concern and how CEO tenure and past acquisition history may influence post-acquisition CEO stock option exercise behavior, offering information valuable in designing effective corporate governance.

Originality/value

This paper is among the first to explore how CEOs manage their options following an acquisition and finds that CEOs are more likely to exercise stock options following an acquisition. Post-acquisition compensation management is an important, though overlooked, consideration in improving acquisition performance.

Details

Management Decision, vol. 53 no. 9
Type: Research Article
ISSN: 0025-1747

Keywords

Article
Publication date: 20 June 2019

Luis Gomez-Mejia, J. Samuel Baixauli-Soler, Maria Belda-Ruiz and Gregorio Sanchez-Marin

The purpose of this paper is to provide an extension of the behavioral agency model (BAM) by focusing on the moderating role of CEO gender on the relationship between CEO stock…

Abstract

Purpose

The purpose of this paper is to provide an extension of the behavioral agency model (BAM) by focusing on the moderating role of CEO gender on the relationship between CEO stock options and risk “systematic vs idiosyncratic” and the performance consequences “positive vs negative” of these option incentives.

Design/methodology/approach

Data on CEO’s stock option portfolios are collected from the Standard & Poor’s (S&P’s) ExecuComp. This paper uses a panel data analysis for matched samples of CEOs in S&P’s 1,500 listed firms over the period 2006-2013.

Findings

The results indicate a more conservative, risk-averse posture in the case of female CEOs than for male CEOs when they are compensated with stock options for idiosyncratic (firm-specific) risk. The results also confirm that female CEOs in low systematic risk contexts, although more conservative, take more prudent risks that produce better long-term outcomes as compared to their male counterparts.

Practical implications

Important implications for the design of optimal CEO’s compensation packages emanate from this study. Findings provide useful tools for board of directors to design CEO’s pay packages that take into account the different risk behavior of male and female CEOs with the aim of enhancing firm performance.

Originality/value

This paper provides new evidence within the area of stock option-based compensation by focusing on the distinction between systematic and idiosyncratic risk when the effect of CEO stock option is analyzed and performance implications of awarding options to male and female CEOs.

Objetivo

El objetivo de este trabajo es proporcionar una extensión del modelo comportamental de agencia o Behavioral Agency Model (BAM) centrada en el papel moderador del género del CEO en la relación entre la retribución basada en opciones o stock options y los niveles de riesgo –sistemático e idiosincrático– y en las consecuencias –positivas o negativas– sobre el resultado de la empresa.

Diseño/metodología/aproximación

Los datos sobre stock options de CEOs se recopilan de la base de datos Standard and Poor’s ExecuComp. Este estudio utiliza un análisis de datos de panel para muestras emparejadas de empresas incluidas en S&P 1500 durante el período 2006-2013.

Resultados

Los resultados indican una postura más conservadora de las mujeres CEO en términos de niveles de riesgo idiosincrático en comparación con la llevada a cabo por los CEOs hombres cuando se les retribuye con stock options. Los resultados también confirman que las mujeres CEO en contextos de riesgo sistemático bajo, aunque más conservadoras, asumen riesgos “de mayor calidad” que producen mejores resultados a largo plazo en comparación con sus homólogos masculinos.

Implicaciones prácticas

Importantes implicaciones para el diseño de paquetes de retribución óptimos para el CEO emanan de este estudio. Los resultados mostrados proporcionan herramientas útiles para el Consejo de Administración a la hora de diseñar paquetes de retribución para CEOs. Se deben tener en cuenta los diferentes comportamientos relacionados con la asunción de riesgos de CEOs hombres y mujeres con el objetivo de mejorar el resultado de la empresa.

Originalidad/valor

Esta investigación proporciona nueva evidencia dentro del área de la retribución basada en stock options al centrarse tanto en la distinción de riesgos (sistemático e idiosincrático) como en las implicaciones sobre el resultado de la empresa de las stock options dadas como parte de su retribución a hombres y mujeres que ocupan la posición de CEO.

Palabras clave Modelo comportamental de agencia, Opciones sobre acciones, Género, Riesgo sistemático, Riesgo idiosincrático, Resultado

Tipo de artículo

Artículo de investigación

Objetivo

O objetivo deste artigo é fornecer uma extensão da perspectiva do Modelo de Agência Comportamental (BAM) focada nas opções de ações examinando as influências e consequências do desempenho do CEO, considerando a distinção entre risco sistemático e idiossincrático sobre o efeito das opções de ações. em comportamento de risco.

Design/metodologia/abordagem

Os dados sobre portfólios de opções de ações do CEO são coletados do Standard and Poor’s ExecuComp. Este documento utiliza uma análise de dados em painel para amostras correspondentes de empresas listadas no S&P 1500 no período 2006-2013.

Resultados

Os resultados indicam uma postura mais conservadora, avessa ao risco, no caso de CEOs do sexo feminino do que para CEOs do sexo masculino, quando eles são compensados com opções de ações para o risco idiossincrático (específico da empresa). Os resultados também confirmam que as CEOs do sexo feminino em contextos de baixo risco sistemático, embora mais conservadoras, assumem riscos mais prudentes que produzem melhores resultados a longo prazo, em comparação com os seus homólogos masculinos.

Implicações práticas

Implicações importantes para o projeto de pacotes de remuneração de CEOs ideais emanam deste estudo. Os resultados fornecem ferramentas úteis para o conselho de diretores, a fim de projetar pacotes de remuneração do CEO que levem em conta o comportamento de risco diferente dos CEOs do sexo feminino e masculino, com o objetivo de melhorar o desempenho da empresa.

Originalidade/valor

Este documento fornece novas evidências dentro da área de remuneração baseada em opções de ações, concentrando-se tanto no tipo de risco como determinante do seu efeito de risco quanto nas implicações de desempenho da concessão de opções a CEOs do sexo feminino e masculino.

Palavras-chave Modelo de agência comportamental, Opções de ações, Gênero, risco sistemático, Risco idiossincrático, Atuação

Tipo de artigo

Artigo de pesquisa

Details

Management Research: Journal of the Iberoamerican Academy of Management, vol. 17 no. 1
Type: Research Article
ISSN: 1536-5433

Keywords

Article
Publication date: 30 July 2018

Jean Canil and Bruce Rosser

The authors study stock and option grants around abrupt performance declines for continuing CEOs and find that firms facing abrupt financial declines grant more options than…

Abstract

Purpose

The authors study stock and option grants around abrupt performance declines for continuing CEOs and find that firms facing abrupt financial declines grant more options than stock, while firms facing operational decline grant more stock than options. Firms making these adjustments just prior to performance declines outperform those that do not for three years following the decline and are less likely to engage in asset restructuring. To establish causality, the authors exploit compensation changes instigated by FAS 123R accounting regulation in 2005 that mandated stock option expensing. The result is robust to numerous tests, including rebalancing of incentives and CEO turnover. The paper aims to discuss these issues.

Design/methodology/approach

To establish causality, the authors exploit compensation changes instigated by FAS 123R accounting regulation in 2005 that mandated stock option expensing.

Findings

Firms making these adjustments just prior to performance declines outperform those that do not for three years following the decline and are less likely to engage in asset restructuring. The result is robust to numerous tests, including rebalancing of incentives and CEO turnover.

Originality/value

Several studies examine the relationship between poor performance and compensation of newly appointed CEOs. But firms regularly employ retention or incentive plans when experiencing distress to prevent critical employees from leaving when they are most needed (Goyal and Wang, 2017). Employee turnover results in a loss of continuity coupled with high search and training costs for replacement personnel. Beneish et al. (2017) find that 57 percent of CEOs associated with intentional misreporting retain their jobs, implying the costs of removing CEOs is high, especially if the incumbent CEO has a strong track record relative to industry peers prior to the period before the misreporting begins. The board fires the CEO if future firm value under the CEO is expected to be lower than under the best alternative CEO less adjustment costs (e.g. search costs, severance pay).

Details

Managerial Finance, vol. 44 no. 8
Type: Research Article
ISSN: 0307-4358

Keywords

Article
Publication date: 17 May 2022

Sedki Zaiane, Halim Dabbou and Mohamed Imen Gallali

The purpose of this study is to examine the relationship between stock options compensation and firm strategic risk-taking, employing a quantile regression (QR) model. This study…

Abstract

Purpose

The purpose of this study is to examine the relationship between stock options compensation and firm strategic risk-taking, employing a quantile regression (QR) model. This study aims to analyze whether the impact of stock options on firm strategic risk-taking changes across various quantiles and investigates the moderating role of firm performance.

Design/methodology/approach

This study is based on a sample of 90 French firms for the period extending from 2008 to 2019. To deal with the non-uniform association, the authors use a panel quantile method.

Findings

The results reveal that the impact of chief executive officer (CEO) stock options on firm strategic risk-taking varies across risk-taking quantiles. More specifically, the study’s results show a positive association at low quantile levels of strategic risk-taking, measured by research and development (R&D) and a negative linkage at high levels. The authors also find that firm performance moderates the impact of CEO stock options on strategic risk-taking.

Research limitations/implications

The non-uniform relationship between CEO stock options and firm strategic risk-taking shows that the weight of CEO stock options in the total compensation can be a major determinant of the firm's strategic risk-taking attitude.

Originality/value

This study extends existing research on executive compensation and strategic risk-taking. Thus, this study has the potential to help stakeholders, board of directors and regulators, who are attempting to understand how the compensation contract – in particular, stock option pay – is related to the risk behavior of the agents and guide them to structure the executive compensation in an optimal way.

Details

EuroMed Journal of Business, vol. 18 no. 4
Type: Research Article
ISSN: 1450-2194

Keywords

Article
Publication date: 30 September 2019

Richard A. Lord, Yoshie Saito, Joseph R. Nicholson and Michael T. Dugan

The purpose of this paper is to examine the relationship of CEO compensation plans and the risk of managerial equity portfolios with the extent of strategic investments in…

Abstract

Purpose

The purpose of this paper is to examine the relationship of CEO compensation plans and the risk of managerial equity portfolios with the extent of strategic investments in advertising, capital expenditures and research and development (R&D). The elements of compensation are salary, bonuses, options and restricted stock grants. The authors proxy the design of CEO equity portfolios by the price performance sensitivity of the holdings and the portfolio deltas.

Design/methodology/approach

The authors use the components of executive compensation and portfolio risk as the dependent variables, regressing these against measures for the level of strategic investment. The authors test for non-linear relationships between the components of CEO compensation and strategic investments. The sample is a broad cross-section from 1992 to 2016.

Findings

The authors find strong support for non-linear relationships of capital expenditures and R&D with CEO bonuses, option grants and restricted stock grants. There are very complex relationships between the components of executive compensation and R&D expenditures, but little evidence of a relationship with advertising expenditures. The authors also find strong complex relationships in the design of CEO equity portfolios with advertising and R&D.

Originality/value

Little earlier research has considered advertising, capital expenditures and R&D in a unified framework. Also, testing for non-linear associations provides much greater insight into the relationship between the components of executive compensation and strategic investment. The findings represent a valuable incremental contribution to the executive compensation literature. The results also have normative policy implications for compensation committees’ design of optimal annual CEO compensation packages to incentivize or discourage particular strategic investment behavior.

Details

Journal of Financial Economic Policy, vol. 12 no. 1
Type: Research Article
ISSN: 1757-6385

Keywords

Article
Publication date: 15 June 2018

Bradley Olson, Satyanarayana Parayitam, Bradley Skousen and Christopher Skousen

The purpose of this paper is to examine the relationships between CEO ownership, stock option compensation, and risk taking. The authors include important CEO power variables as…

Abstract

Purpose

The purpose of this paper is to examine the relationships between CEO ownership, stock option compensation, and risk taking. The authors include important CEO power variables as moderators.

Design/methodology/approach

The paper uses a longitudinal regression analysis. In addition, the paper includes interactional plots for further interpretation.

Findings

The results indicate that CEO ownership reduces risk taking, while there is a partial support that stock options increase risk taking. CEO tenure is a powerful moderator that decreases risk taking in both CEO ownership and CEO stock option scenarios. Board independence, counter to the hypothesis in this paper, may encourage risk taking.

Research limitations/implications

The findings in this paper provide support for the inclusion of CEO power variables in CEO compensation studies. However, the study examines large publicly traded companies; thus, all findings may not be applicable to small- and medium-sized companies.

Originality/value

Scholars have encouraged more complex CEO compensation models and the authors have examined both main effect and interaction models.

Details

Journal of Strategy and Management, vol. 11 no. 3
Type: Research Article
ISSN: 1755-425X

Keywords

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