The investment opportunity set and the incentives to adopt executive stock option plans

McConnel, Scott. (1994). The investment opportunity set and the incentives to adopt executive stock option plans Honours Thesis, School of Business, University of Queensland.

       
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Author McConnel, Scott.
Thesis Title The investment opportunity set and the incentives to adopt executive stock option plans
School, Centre or Institute School of Business
Institution University of Queensland
Publication date 1994
Thesis type Honours Thesis
Total pages 119
Language eng
Subjects 14 Economics
Formatted abstract This thesis investigates the incentives for Australian corporations to adopt executive stock option plans, as a form of executive compensation. In particular it is viewed that executive stock option plans form part of a firm's efficient contracting framework. The effect of the nature of the firm's assets upon the use of executive stock option plans, and other corporate policies and characteristics is investigated using path analysis.


The hypotheses are based on Myers' (1977) notion of the investment opportunity set, namely the difference between intangible investment opportunities and assets in place. It is expected that the investment opportunity set causes both the use of executive stock options and the firm attribute and that any correlation between these variables is a spurious association, due to the common antecedent variable.

The results provided by the path analysis support this proposition. In particular it is found that the investment opportunity set accounts for the use of executive stock option plans, and that the use of executive stock options is significantly associated with leverage and the firm's systematic risk. After removing the effect of the investment opportunity set on both the use of executive stock options and the firm attribute there is no direct effect, thus supporting the notion of efficient contracting.

 
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