The Trouble with Stock Options
Authors:
Top Cited Papers
- 1 August 2003
- journal article
- Published by American Economic Association in Journal of Economic Perspectives
- Vol. 17 (3) , 49-70
Abstract
The benefits of stock options are often not large enough to offset the inefficiency implied by the large divergence between the cost of options to companies and the value of options to risk-averse, undiversified executives and employees. Moreover, the benefits of options can often be achieved more effectively and economically through other means. Why are options so prevalent? Several explanations include changes in corporate governance, reporting requirements, taxes, the bull market and managerial rent-seeking. We offer an alternative hypothesis: boards and managers incorrectly perceive stock options to be inexpensive because options create no accounting charge and require no cash outlay.Keywords
All Related Versions
This publication has 26 references indexed in Scilit:
- Raids, Rewards, and Reputations in the Market for Managerial TalentThe Review of Financial Studies, 2003
- Regulating Executive Pay: Using the Tax Code to Influence Chief Executive Officer CompensationJournal of Labor Economics, 2002
- Corporate payout policy and managerial stock incentivesJournal of Financial Economics, 2001
- The Efficiency of Equity-Linked Compensation: Understanding the Full Cost of Awarding Executive Stock OptionsFinancial Management, 2001
- Executives and Hedging: The Fragile Legal Foundation of Incentive CompatibilityColumbia Law Review, 2000
- Are CEOs Really Paid Like Bureaucrats?The Quarterly Journal of Economics, 1998
- THE EVA® FINANCIAL MANAGEMENT SYSTEMJournal of Applied Corporate Finance, 1995
- Risk, managerial effort, and project choiceJournal of Financial Intermediation, 1992
- Portfolio Considerations in Valuing Executive CompensationJournal of Accounting Research, 1991
- The Pricing of Options and Corporate LiabilitiesJournal of Political Economy, 1973