Stock Option Compensation in Finland: An Analysis of Economic Determinants, Contracting Frequency, and Design

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dc.contributor Swedish School of Economics and Business Administration, Department of Finance ansd Statistics, Finance en
dc.contributor Svenska handelshögskolan, Institutionen för finansiell ekonomi och ekonomisk statistik, finansiell ekonomi sv
dc.contributor.author Rosenberg, Matts
dc.date.accessioned 2011-03-30T10:50:24Z
dc.date.available 2011-03-30T10:50:24Z
dc.date.issued 2003
dc.identifier.isbn 951-555-806-9 fi
dc.identifier.issn 0357-4598 fi
dc.identifier.uri http://hdl.handle.net/10227/182 fi
dc.identifier.uri URN:ISBN:951-555-806-9 fi
dc.description.abstract This paper addresses several questions in the compensation literature by examining stock option compensation practices of Finnish firms. First, the results indicate that principal-agent theory succeeds quite well in predicting the use of stock options. Proxies for monitoring costs, growth opportunities, ownership structure, and risk are found to determine the use of incentives consistent with theory. Furthermore, the paper examines whether determinants of stock options targeted to top management differ from determinants of broad-based stock option plans. Some evidence is found that factors driving these two types of incentives differ. Second, the results reveal that systematic risk significantly increases the likelihood that firms adopt stock option plans, whereas total firm risk and unsystematic risk do not seem to affect this decision. Third, the results show that growth opportunities are related to time-dimensional contracting frequency, consistent with the argument that incentive levels deviate more rapidly from optimum in firms with high growth opportunities. Finally, the results suggest that vesting schedules are decreasing in financial leverage, and that contract maturity is decreasing in firm focus. In addition, both vesting schedules and contract maturity tend to be longer in firms involving state ownership. fi
dc.description.abstract This paper addresses several questions in the compensation literature by examining stock option compensation practices of Finnish firms. First, the results indicate that principal-agent theory succeeds quite well in predicting the use of stock options. Proxies for monitoring costs, growth opportunities, ownership structure, and risk are found to determine the use of incentives consistent with theory. Furthermore, the paper examines whether determinants of stock options targeted to top management differ from determinants of broad-based stock option plans. Some evidence is found that factors driving these two types of incentives differ. Second, the results reveal that systematic risk significantly increases the likelihood that firms adopt stock option plans, whereas total firm risk and unsystematic risk do not seem to affect this decision. Third, the results show that growth opportunities are related to time-dimensional contracting frequency, consistent with the argument that incentive levels deviate more rapidly from optimum in firms with high growth opportunities. Finally, the results suggest that vesting schedules are decreasing in financial leverage, and that contract maturity is decreasing in firm focus. In addition, both vesting schedules and contract maturity tend to be longer in firms involving state ownership. en
dc.format.extent 1837 bytes fi
dc.format.extent 556974 bytes fi
dc.format.mimetype application/pdf fi
dc.format.mimetype text/plain fi
dc.language.iso en fi
dc.publisher Swedish School of Economics and Business Administration en
dc.publisher Svenska handelshögskolan sv
dc.relation.ispartofseries Working Papers fi
dc.relation.ispartofseries 496 fi
dc.rights Publikationen är skyddad av upphovsrätten. Den får läsas och skrivas ut för personligt bruk. Användning i kommersiellt syfte är förbjuden. sv
dc.rights Julkaisu on tekijänoikeussäännösten alainen. Teosta voi lukea ja tulostaa henkilökohtaista käyttöä varten. Käyttö kaupallisiin tarkoituksiin on kielletty. fi
dc.rights This publication is copyrighted. You may download, display and print it for Your own personal use. Commercial use is prohibited. en
dc.subject stock option incentives fi
dc.subject principal-agent theory fi
dc.subject contract design fi
dc.subject.other Finance fi
dc.title Stock Option Compensation in Finland: An Analysis of Economic Determinants, Contracting Frequency, and Design fi
dc.type.dcmitype Text fi

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