Options, Option Repricing in Managerial Compensation: Their Effects on Corporate Investment Risk
While stock options are commonly used in managerial compensation to pro- vide desirable incentives, their adverse e.ects have not been widely appre- ciated. We show that a call-type contract creates incentives to distort the choice of investment risk. Relative to the risk level that maximizes ˉrm value, a call option contract can induce too much or too little corporate risk- taking, depending on managerial risk aversion and the underlying investment technology. We show that inclusion of lookback call options in compensa- tion packages has desirable countervailing e.ects on managerial choice of corporate risk policies and can induce risk policies that increase shareholder wealth. We argue that lookback call options are analogous to the observed practice of option repricing.
Nengjiu Ju Hayne Leland Lemma W. Senbet
Ju is from The School of Business and Management, Hong Kong University of Science and Technology, Cl Leland is from The Haas School of Business,University of California, Berkeley, CA 94720; Senbet is from The Robert H. Smith School of Business, University of Maryland, College Park, MD 2074
国际会议
西安
英文
2006-07-17(万方平台首次上网日期,不代表论文的发表时间)