The Productivity Effects of Stock Option Schemes: Evidence from Finnish Panel Data

Type of Work

Article

Date

2-2010

Journal Title

Journal of Productivity Analysis

Journal ISSN

0895-562X

Journal Volume

33

Journal Issue

1

First Page

67

Last Page

80

DOI

10.1007/s11123-009-0146-6

Abstract

In this study we investigate the productivity effects of employee stock option schemes. We estimate Cobb-Douglas production functions by using new panel data for all Finnish publicly listed firms during 1992–2002. The data enable us to distinguish broad-based option plans, for which all employees are eligible, from those selectively allocated to particular employees. For both type of schemes, our baseline fixed effects estimators consistently find statistically insignificant associations with firm productivity. When endogeneity of production inputs and option-schemes are taken into account we continue to find no evidence of a link with firm productivity. Our main findings are consistent with hypotheses that predict negligible effects of option plans for enterprise performance, such as those based on free riding, psychological expectancy theory, accounting myopia, or rent-seeking. We consider reasons why our empirical findings on the impact of broad-based options differ from those found in earlier studies. JEL Classification: D24, C33, J33, M52

Hamilton Areas of Study

Economics

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