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Australian evidence on CEO option grants

Author

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  • Jean Canil

    (University of Adelaide, Australia)

  • Bruce Rosser

    (University of Adelaide, Australia)

Abstract

We test the option incentive models of Hall and Murphy (2000, 2002) and Choe (2003). Hall and Murphy (2000, 2002) posit optimal grant size and exercise price contingent on the executive’s levels of risk aversion and private diversification. Choe (2003) relates these choices to firm characteristics, principally the target risk level and financial leverage. A unique hand-collected data set of Australian grants is employed, wherein exercises prices and grant sizes are unconstrained by taxation and accounting practices. The Hall and Murphy (2000, 2002) model is found to explain observed exercise prices while neither model satisfactorily explains grant sizes. However, there is some evidence that CEO influence is associated with larger grants than posited by these optimal incentive models, but does not impact on exercise prices.

Suggested Citation

  • Jean Canil & Bruce Rosser, 2012. "Australian evidence on CEO option grants," Multinational Finance Journal, Multinational Finance Journal, vol. 16(3-4), pages 225-260, September.
    • Handle: RePEc:mfj:journl:v:16:y:2012:i:3-4:p:225-260
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    References listed on IDEAS

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    More about this item

    Keywords

    Executive; stock options; optimal; grant size; exercise price; governance;
    All these keywords.

    JEL classification:

    • G39 - Financial Economics - - Corporate Finance and Governance - - - Other
    • G34 - Financial Economics - - Corporate Finance and Governance - - - Mergers; Acquisitions; Restructuring; Corporate Governance

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