The effect of executive stock option compensation to stock volatility: Evidence from the US market

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School of Business | Bachelor's thesis
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Date
2019
Major/Subject
Mcode
Degree programme
Rahoitus
Language
en
Pages
21
Series
Abstract
In this paper, I study the relationship between executive stock option awarding and stock volatility. While stock options are a widely used tool to minimize moral hazard, finance theory also suggests that they should incentivize the manager to increase firm riskiness. This study provides further empirical support for the theory: I find a statistically significant connection between the executives’ option awards ratio and stock volatility. Despite the positive connection, the economic significance of the risk-increasing effect is relatively small. The findings are robust to the inclusion of entity and year fixed effects and do not seem to be driven by reverse causality.
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Thesis advisor
Spickers, Theresa
Keywords
stock options, option compensation, risk taking, volatility
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