Can Employee Stock Options Contribute to Less Risk-Taking?

• 成果类型: Article
• 署名作者: Billings, Bruce K.; Moon, James R.; Morton, Richard M.; Wallace, Dana M.
• 署名单位: State University System of Florida; Florida State University; University System of Georgia; Georgia Institute of Technology; State University System of Florida; University of Central Florida
• 刊物名称: CONTEMPORARY ACCOUNTING RESEARCH
• ISSN/ISSBN: 0823-9150
• DOI: 10.1111/1911-3846.12562
• 发表日期: 2020
• 页码: 1658-1686
• 关键词: research-and-development; equity risk; COMPENSATION; incentives; overconfidence; determinants; EFFICIENCY; patents; WEALTH; firm

摘要

The executive compensation literature presumes that shareholders offer risk-averse managers stock options to entice them to take on more risk, resulting in riskier investment decisions and thus a greater return on investment. However, recent empirical work challenges this assumption, and theoretical research even argues that high levels of option-based compensation for generally under-diversified managers may actually lead to greater risk aversion. We evaluate the incentive structure of employee stock options by examining the level of R&D investment and the return on that investment conditional on the portfolio vega, which captures the sensitivity of option value to stock price volatility. Our results suggest that both investment in R&D and the return on R&D, as measured by future earnings and patent awards, varies concavely with vega. That is, low to moderate levels of vega correspond to increasing investment in and returns on R&D, consistent with vega inducing more profitable investments, but marginal returns decline as vega increases. Collectively, these results, bolstered by several supplemental analyses, suggest that this surprising relation between vega and risky investment is driven by greater risk aversion at higher levels of vega. Overall, our results imply that employee stock options may not always align the incentives of managers and shareholders.