Abstract
This paper examines the impact of information disclosure on the valuation of CEO options and the incentives created by those options. Prior executive compensation research in the US has made assumptions about key input variables that can affect the calculation of option values and financial incentives. Accordingly, biases may have ensued due to incomplete information disclosure about noncurrent option grants. Using new data on a sample of UK CEOs, we value executive option holdings and incentives for the first time and estimate the levels of distortion created by the less than complete US-style disclosure requirements. We also investigate the levels of distortion in the UK for the minority of companies that choose to reveal only partial information. Our results suggest that there have to date been few economic biases arising from less than complete information disclosure. Furthermore, we demonstrate that researchers using US data, who made reasonable assumptions about the inputs of noncurrent option grants, are unlikely to have made significant errors when calculating CEO financial incentives or option wealth. However, the recent downturn in the US stock market could result in the same assumptions, producing exaggerated incentive estimates in the future.
Original language | English |
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Pages (from-to) | 251-277 |
Number of pages | 27 |
Journal | Review of Financial Economics |
Volume | 10 |
Issue number | 3 |
DOIs | |
Publication status | Published - 16 Jan 2002 |
Externally published | Yes |
Keywords
- CEO compensation
- Executive options
- Information disclosure
ASJC Scopus subject areas
- Finance
- Economics and Econometrics