The Determinants of Stock Option Compensation: Evidence from Finland

Type of Work

Article

Date

7-2006

Journal Title

Industrial Relations

Journal ISSN

0019-8676

Journal Volume

45

Journal Issue

3

First Page

437

Last Page

468

DOI

10.1111/j.1468-232X.2006.00432.x

Abstract

A new, long, and rich panel data set consisting of all Finnish publicly traded firms is used to study how firm characteristics and stock market developments influence the adoption and targeting of stock option compensation. Stock option adoption is found to be a procyclical phenomenon. Findings from firm-level econometric analysis often corroborate those based on U.S. data, but important differences also emerge. Findings include: (i) firms with higher market value per employee are more likely to use stock option compensation; (ii) share returns from the past year affect the adoption of targeted stock options, but not broad-based plans; (iii) our results are consistent with the hypothesis that selective and broad-based plans arise as solutions to differing monitoring difficulties. Broad-based schemes are observed when production is human capital-intensive and employee performance is hard to monitor, while selective schemes are adopted when ownership is dispersed and therefore owners may have weak incentives to monitor management.

Notes

JEL Classification: J33, M12, M52

Hamilton Areas of Study

Economics

Link to Full Text

Share

COinS