The Impact of Directors’ Option Compensation on Their Independence
This study examines how the use of option-based compensation for directors affects their independence in their decisions on CEOs’ option-grant dates. Firms typically grant CEOs options with the strike price set equal to the grant-day stock price. This practice creates a unique opportunity for CEOs to benefit from timing opportunism, whereby CEOs lower grant-day stock prices in order to increase the value of their option grants. Prior studies find that CEOs tend to receive options before (after) good news (bad news), indicating that timing opportunism exists. Since directors frequently receive options at the same time as CEOs, directors also benefit from timing opportunism. We argue that these directors may not have an incentive to constrain CEO timing opportunism. We hypothesize and find that it is more (less) difficult for CEOs to implement timing opportunism when option compensation is less (more) important to directors. Our results indicate that, when used as a common component of CEOs’ and directors’ compensation, stock options can compromise directors’ independence in their role of constraining timing opportunism.
Donal Byard Ying Li
Baruch College - CUNY
国际会议
昆明
英文
1-45
2005-07-05（万方平台首次上网日期，不代表论文的发表时间）