Resolving the Agency Problems of External Capital through Options

Haugen, Robert A.; Senbet, Lemma W.

doi:10.2307/2327523

Cited by 150 publications

(155 citation statements)

References 3 publications

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“…They hypothesize that equity-linked compensation plans reduce agency costs in a firm. Haugen and Senbet (1981) provide support for this hypothesis when they show that executives can be encouraged to maximize firm resources if a portion of their wealth is tied to firm performance through XSO grants.…”

Section: Discussion On Executive Stock Option Grants and Hypothesis Dmentioning

confidence: 91%

“…This model motivates a series of studies that further develop the implication that XSO grants encourage risk taking. For instance, Haugen and Senbet (1981) argue that XSO grants induce risk taking behavior in executives who would otherwise shun risky projects. The benefits of XSO grants could compensate these executives for taking additional risk.…”

Section: Discussion On Executive Stock Option Grants and Hypothesis Dmentioning

confidence: 99%

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Do executive stock option grants have value implications for firm performance?

Lam

Chng²

2006

Rev Quant Finan Acc

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Consistent with predictions of agency theory, we find direct evidence that executive stock option grants have value implications for firm performance. This inference is drawn from evaluation of various motivations for the use of such grants in executive compensation: value enhancement, risk taking, tax benefit, signaling and cash conservation. We find consistent evidence for the value enhancement motivation to reduce agency costs. As well, they signal for positive price sensitive information. Our results reject the tax benefit and cash conservation motivations. This finding is robust after controlling for the endogenous character of executive stock option grants and other equity-based grants. Copyright Springer Science + Business Media, Inc. 2006Executive stock option grants, Compensation, Agency theory, Firm performance, Endogeneity,

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Section: Discussion On Executive Stock Option Grants and Hypothesis Dmentioning

confidence: 91%

Section: Discussion On Executive Stock Option Grants and Hypothesis Dmentioning

confidence: 99%

Do executive stock option grants have value implications for firm performance?

Lam

Chng²

2006

Rev Quant Finan Acc

View full text Add to dashboard Cite

show abstract

“…The extent to which that representation can also meaningfully describe situations that depart substantially from this limiting model is debatable. Modern capitalism has evolved into complex permutations of ownership rights and representational capacities (e.g., Haugen and Senbet, 1981). The former includes various classes of institutional owners known to behave differently than beneficial owners, and also include financial analysts who act as sophisticated information gatherers and disseminators, and as a disciplining mechanism on managerial behavior.…”

Section: Agency Theorymentioning

confidence: 99%

Inside Agency: The Rise and Fall of Nortel

et al. 2008

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“…See, for example,Jensen and Meckling, 1976;Haugen and Senbet, 1981;Smith and Stulz, 1985;Lambert, 1986;Copeland and Weston, 1988;Lambert et al, 1991;Hirshleifer and Suh, 1992;Hemmer et al, 1999. …”

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confidence: 99%