TAILIEUCHUNG - TAKING STOCK: EQUITY-BASED COMPENSATION AND THE EVOLUTION OF MANAGERIAL OWNERSHIP

The versatility of options stems from the variety of strategies available to the investor. Some of the more basic uses of options are explained in the following examples. For more detailed explanations, contact your broker or any of the exchanges. For purposes of illustration, commission and transaction costs, tax considerations and the costs involved in margin accounts have been omitted from the examples in this document. These factors will affect a strategy's potential outcome, so always check with your broker and tax advisor before entering into any of these strategies. The following examples also assume that all Options are American-style and, therefore, can he exercised at any time. | THE JOURNAL OF FINANCE VOL. LV NO. 3 JUNE 2000 Taking Stock Equity-Based Compensation and the Evolution of Managerial Ownership ELI OFEK and DAVID YERMACK ABSTRACT We investigate the impact of stock-based compensation on managerial ownership. We find that equity compensation succeeds in increasing incentives of lower-ownership managers but higher-ownership managers negate much of its impact by selling previously owned shares. When executives exercise options to acquire stock nearly all of the shares are sold. Our results illuminate dynamic aspects of managerial ownership arising from divergent goals of boards of directors who use equity compensation for incentives and managers who respond by selling shares for diversification. The f indings cast doubt on the frequent and important theoretical assumption that managers cannot hedge the risks of these awards. We investigate the impact of stock-based compensation including options and restricted stock on the ownership of . executives. Equity-based pay spread at explosive rates in the United States during the 1990s. Morgenson 1998 reports that in 1997 the 200 largest . companies had reserved more than 13 percent of their common shares for compensation awards to managers up from less than seven percent eight years earlier. Institutional investors and shareholder activists have tolerated and even encouraged this diversion of equity to executives believing that managerial ownership may reduce agency problems. Boards compensation committees routinely cite the goal of increasing managerial ownership as the rationale for equity-based Although boards state that they intend stock options and other awards to boost the ownership of managers executives are not likely to have the same goal. Modern portfolio theory predicts that managers receiving additional stock in their f irms should sell these shares or equivalently sell other shares The authors are from New York University. We appreciate helpful comments and .

• Đầu tư Chứng khoán
• Health Longevity Medicine
• Alcoholism
• Russian Mortality Crisis
• Current Concepts
• Epidemiology
• Pathophysiology and Future Remarks
• Epigenetic Paradigm
• Lifestyle Changes
• Longevity Medicine