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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Authors
Date
2019
Department
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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.Description
Thesis advisor
Spickers, TheresaKeywords
stock options, option compensation, risk taking, volatility