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The information content of options trading for the CEO employee pay ratio

Author

Listed:
  • Pei-Fang Hsieh

    (National Tsing Hua University)

  • Zih-Ying Lin

    (Fu Jen Catholic University)

Abstract

This research examines how option trading activity reduces information asymmetry through the CEO’s and ordinary employee’s awareness of firm value and their pay related to firm performance. Our findings demonstrate that companies with more options trading activity have a higher CEO-employee pay ratio, which is consistent with the tournament theory. Option trading illustrates that both CEOs and employees understand their relevant payment based on the precise firm value. This advantage of option trading becomes weak for firms with higher profitability, for employees with more bargaining power, and for CEOs with a higher risk incentive.

Suggested Citation

  • Pei-Fang Hsieh & Zih-Ying Lin, 2025. "The information content of options trading for the CEO employee pay ratio," Review of Quantitative Finance and Accounting, Springer, vol. 64(1), pages 89-118, January.
    • Handle: RePEc:kap:rqfnac:v:64:y:2025:i:1:d:10.1007_s11156-024-01307-y
    DOI: 10.1007/s11156-024-01307-y
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    More about this item

    Keywords

    Price informativeness; CEO-employee pay ratio; Options volumes; Employee’s bargaining power;
    All these keywords.

    JEL classification:

    • G14 - Financial Economics - - General Financial Markets - - - Information and Market Efficiency; Event Studies; Insider Trading

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