Options, option repricing in managerial compensation: Their effects on corporate investment risk

Autor:	Lemma W. Senbet, Nengjiu Ju, Hayne E. Leland
Rok vydání:	2014
Předmět:	Finance Economics and Econometrics business.industry Risk aversion Strategy and Management Compensation (psychology) Financial risk Enterprise value Non-qualified stock option Investment (macroeconomics) Microeconomics Incentive Shareholder Business and International Management business
Zdroj:	Journal of Corporate Finance. 29:628-643
ISSN:	0929-1199
DOI:	10.1016/j.jcorpfin.2013.11.003
Popis:	While stock options are commonly used in managerial compensation to provide desirable incentives, they can create adverse incentives to distort the choice of investment risk. Relative to the risk level that maximizes firm value, call options in a compensation 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 compensation packages has desirable countervailing effects 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.
Databáze:	OpenAIRE
Externí odkaz:	https://explore.openaire.eu/search/publication?articleId=doi_________::d2ea08d2595ba5de1bc122081dd712c5 https://doi.org/10.1016/j.jcorpfin.2013.11.003 Zobrazit plný text záznamu Full Text from ScienceDirect