TITLE

Are CEO stock option grants optimal? Evidence from family firms and non-family firms around the Sarbanes-Oxley Act

AUTHOR(S)
Tang, Hongfei
PUB. DATE
February 2014
SOURCE
Review of Quantitative Finance & Accounting;Feb2014, Vol. 42 Issue 2, p251
SOURCE TYPE
Academic Journal
DOC. TYPE
Article
ABSTRACT
This paper investigates the optimality of stock option grants to Chief Executive Officers (CEOs) by examining a set of S&P 500 companies around the passage of the Sarbanes-Oxley Act (SOX). I find that stock option grants to non-founding-family CEOs decreased dramatically after the passage of SOX. In addition, non-family firms granted significantly more stock options than family firms before the SOX, but not after its passage. These findings are consistent with the interpretation that CEOs use stock option grants as tools to extract rents from shareholders. This interpretation is further supported by evidence that the large decrease in stock option grants after the SOX was passed is not detrimental to firm performance, and by evidence from a test of the trade-off between option and non-option compensation.
ACCESSION #
94005712

 

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