Arbeitspapier
Estimating the Cost of Executive Stock Options: Evidence from Switzerland
It is often argued that Black-Scholes (1973) values overstate the subjective value of stock options granted to risk-averse and under-diversified executives. We construct a “representative” Swiss executive and extend the certainty- equivalence approach presented by Hall and Murphy (2002) to assess the value-cost wedge of executive stock options. Even with low coefficients of relative risk aversion, the discount can be above 50% compared to the Black-Scholes values. Regression analysis reveals that the equilibrium level of executive compensation is explained by economic determinant variables such as firm size and growth opportunities, whereas the managers' pay-forperformance sensitivity remains largely unexplained. Firms with larger boards of directors pay higher wages, indicating potentially unresolved agency conflicts. We reject the hypothesis that cross-sectional differences in the amount of executive pay vanish when risk-adjusted values are used as the dependent variable.
- Sprache
-
Englisch
- Erschienen in
-
Series: WWZ Working Paper ; No. 17/07
- Klassifikation
-
Wirtschaft
Compensation Packages; Payment Methods
Contingent Pricing; Futures Pricing; option pricing
Financing Policy; Financial Risk and Risk Management; Capital and Ownership Structure; Value of Firms; Goodwill
- Thema
-
Managerial compensation
incentives
executive stock options
option valuation
risk aversion
Aktienoption
Führungskräfte
Leistungsanreiz
Risikoaversion
Black-Scholes-Modell
Schweiz
- Ereignis
-
Geistige Schöpfung
- (wer)
-
Drobetz, Wolfgang
Pensa, Pascal
Schmid, Markus M.
- Ereignis
-
Veröffentlichung
- (wer)
-
University of Basel, Center of Business and Economics (WWZ)
- (wo)
-
Basel
- (wann)
-
2007
- DOI
-
doi:10.5451/unibas-ep61235
- Handle
- Letzte Aktualisierung
-
10.03.2025, 11:43 MEZ
Datenpartner
ZBW - Deutsche Zentralbibliothek für Wirtschaftswissenschaften - Leibniz-Informationszentrum Wirtschaft. Bei Fragen zum Objekt wenden Sie sich bitte an den Datenpartner.
Objekttyp
- Arbeitspapier
Beteiligte
- Drobetz, Wolfgang
- Pensa, Pascal
- Schmid, Markus M.
- University of Basel, Center of Business and Economics (WWZ)
Entstanden
- 2007
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