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Year 2019, , 101 - 113, 30.06.2019

Ratny Seng Kimly Heng Gao-liang Tian Mohammad Arshad Arif Hua Feng

https://doi.org/10.17261/Pressacademia.2019.1041

Abstract

References

  • Abowd, J. M., & Kaplan, D. S. (1999). Executive Compensation: Six Questions That Need Answering. Journal of Economic Perspectives, 13(4), 145-168.
  • Aggarwal, R., & Samwick, A. (2002). The other side of the tradeoff: The impact of risk on executive compensation-A reply.
  • Akinwande, M. O., Dikko, H. G., & Samson, A. (2015). Variance inflation factor: As a condition for the inclusion of suppressor variable (s) in regression analysis. Open Journal of Statistics, 5(07), 754.
  • Baysinger, B., & Hoskisson, R. E. (1990). The composition of boards of directors and strategic control: Effects on corporate strategy. Academy of Management review, 15(1), 72-87.
  • Bromiley, P. (1991). Testing a causal model of corporate risk taking and performance. Academy of Management journal, 34(1), 37-59.
  • Carpenter, J. N. (2000). Does option compensation increase managerial risk appetite? The Journal of Finance, 55(5), 2311-2331.
  • Chourou, L., Abaoub, E., & Saadi, S. (2008). The economic determinants of CEO stock option compensation. Journal of Multinational Financial Management, 18(1), 61-77. doi: https://doi.org/10.1016/j.mulfin.2007.05.001
  • Coles, J. L., Daniel, N. D., & Naveen, L. (2006). Managerial incentives and risk-taking. Journal of Financial Economics, 79(2), 431-468.
  • DeFusco, R. A., Johnson, R. R., & Zorn, T. S. (1990). The effect of executive stock option plans on stockholders and bondholders. The Journal of Finance, 45(2), 617-627.
  • DeFusco, R. A., Zorn, T. S., & Johnson, R. R. (1991). The association between executive stock option plan changes and managerial decision making. Financial Management, 36-43.
  • Demsetz, H., & Lehn, K. (1985). The structure of corporate ownership: Causes and consequences. Journal of political economy, 93(6), 1155-1177.
  • Easterbrook, F. H. (1984). Two agency-cost explanations of dividends. The American Economic Review, 74(4), 650-659.
  • Faccio, M., Marchica, M.-T., & Mura, R. (2011). Large shareholder diversification and corporate risk-taking. The Review of Financial Studies, 24(11), 3601-3641.
  • Fama, E., French, K., Fenn, G. W., Liang, N., Busaba, W. Y., Benveniste, L. M., . . . Mian, S. (2001). 1. Disappearing dividends: changing firm characteristics or lower propensity to pay? Journal of Financial Economics, 60(1), 1-176.
  • FischerBlack, & MyronScholes. (1973). The pricing of options and corporate liabilities. Journal of political economy, 81(3), 637-654.
  • Guay, W. R. (1999). The sensitivity of CEO wealth to equity risk: an analysis of the magnitude and determinants. Journal of Financial Economics, 53(1), 43-71.
  • Hall, B. J., & Liebman, J. B. (1998). Are CEOs Really Paid Like Bureaucrats?*. The Quarterly Journal of Economics, 113(3), 653-691. doi: 10.1162/003355398555702
  • Hambrick, D. C., Cho, T. S., & Chen, M.-J. (1996). The influence of top management team heterogeneity on firms' competitive moves. Administrative science quarterly, 659-684.
  • Huddart, S., & Lang, M. (1996). Employee stock option exercises an empirical analysis. Journal of Accounting and Economics, 21(1), 5-43.
  • Jensen, M. C., & Murphy, K. J. (1990). Performance pay and top-management incentives. Journal of political economy, 98(2), 225-264.
  • Jolls, C. (1998). Stock repurchases and incentive compensation: National bureau of economic research.
  • Lacouture, M. E., Wu, S., Robert, C., Atkins, M. B., Kong, H. H., Guitart, J., . . . Alexandrescu, D. T. (2008). Evolving strategies for the management of hand–foot skin reaction associated with the multitargeted kinase inhibitors sorafenib and sunitinib. The oncologist, 13(9), 1001-1011.
  • Lambert, R. A., Larcker, D. F., & Verrecchia, R. E. (1991). Portfolio considerations in valuing executive compensation. Journal of Accounting Research, 129-149.
  • Lewellen, W., Loderer, C., & Martin, K. (1987). Executive compensation and executive incentive problems: An empirical analysis. Journal of Accounting and Economics, 9(3), 287-310.
  • Li, L., & Sanseau, P.-Y. (2013). Influential Factors Of Executives' Equity-Based Revenue In Chinese- Listed Companies. Jounal of Applied Business Research, 29(2), 379.
  • Luo, L. (2015a). Determinants Of Stock Option Use By Chinese Companies. The Journal of Applied Business Research, 31(4), 1355-1376.
  • Luo, L. (2015b). Determinants Of Stock Option Use By Chinese Companies. Journal of Applied Business Research, 31(4), 1355.
  • Murphy, K. J. (1999). Executive compensation. Handbook of labor economics, 3, 2485-2563.
  • Murphy, K. J., & Zábojník, J. (2004). CEO Pay and Appointments: A Market-Based Explanation for Recent Trends. American Economic Review, 94(2), 192-196. doi: doi: 10.1257/0002828041302262
  • Palmer, T. B., & Wiseman, R. M. (1999). Decoupling risk taking from income stream uncertainty: A holistic model of risk. Strategic Management Journal, 20(11), 1037-1062.
  • Rajgopal, S., & Shevlin, T. (2002). Empirical evidence on the relation between stock option compensation and risk taking. Journal of Accounting and Economics, 33(2), 145-171.
  • Ross, L., & Zhou, K. (2005). Trading and distribution in China The international journal of cometition policy and regulation.
  • Ross, S. A. (2004). Compensation, incentives, and the duality of risk aversion and riskiness. The Journal of Finance, 59(1), 207-225.
  • Ruefli, T. W., Collins, J. M., & Lacugna, J. R. (1999). Risk measures in strategic management research: auld lang syne? Strategic Management Journal, 20(2), 167-194.
  • Saunders, A., Strock, E., & Travlos, N. G. (1990). Ownership structure, deregulation, and bank risk taking. The Journal of Finance, 45(2), 643-654.
  • Schrand, C., & Unal, H. (1998). Hedging and coordinated risk management: Evidence from thrift conversions. The Journal of Finance, 53(3), 979-1013.
  • Singh, M., Davidson III, W. N., & Suchard, J.-A. (2003). Corporate diversification strategies and capital structure. The Quarterly Review of Economics and Finance, 43(1), 147-167.
  • Triki, T., & Ureche-Rangau, L. (2012). Stock Options and Firm Performance: New Evidence from the French Market. Journal of International Financial Management & Accounting, 23(2), 154-185. doi: 10.1111/j.1467-646X.2012.01057.x
  • Wright, P., Kroll, M., Krug, J. A., & Pettus, M. (2007). Influences of top management team incentives on firm risk taking. Strategic Management Journal, 28(1), 81-89.
  • Yermack, D. (1995). Do corporations award CEO stock options effectively? Journal of Financial Economics, 39(2), 237-269. doi: https://doi.org/10.1016/0304-405X(95)00829-4 Yermack, D. (1997). Good timing: CEO stock option awards and company news announcements. The Journal of Finance, 52(2), 449-476.

THE IMPACT OF MANAGERIAL STOCK OPTION ON FIRM RISK TAKING: EVIDENCE FROM CHINA

Year 2019, , 101 - 113, 30.06.2019

Ratny Seng Kimly Heng Gao-liang Tian Mohammad Arshad Arif Hua Feng

https://doi.org/10.17261/Pressacademia.2019.1041

Abstract

Purpose- This study is to investigate the firm risk-taking which influence by managerial of stock option.
Methodology- The empirical analysis of multiple regressions with a robustness test of OLS and STATA software were used in this study. In order to make our findings more practically and reliable, more robust tests have been applied, such as Fixed Effect Model with cluster standard error, Propensity Score Matching Model (PSM) and Dummy Effect Model.
Findings- stock option processing management has a significant positive impact on firm risk taking, market to book value, firm leverage, block-holder, asset turnover and portfolio have significant positive effects on firm risk taking. Firm size and state ownership have a significant negative impact on firm risk taking. Board does not influence on firm risk. It suggests top managers tend to use their power in managerial operation of stock option to manipulate earnings through employee stock option schemes, which causes companies to face high risk. Last result revealed that state ownership is helping to keep an eye on the corporation operation as a monitoring person.
Conclusion- Based on the results, this study delivered essential implication policy for investors, regulators, top manager as well as governance to take action in order to improve equity incentive system more effectively as well as to build healthier security markets in the world.

Keywords

managerial stock option firm risk China

References

  • Abowd, J. M., & Kaplan, D. S. (1999). Executive Compensation: Six Questions That Need Answering. Journal of Economic Perspectives, 13(4), 145-168.
  • Aggarwal, R., & Samwick, A. (2002). The other side of the tradeoff: The impact of risk on executive compensation-A reply.
  • Akinwande, M. O., Dikko, H. G., & Samson, A. (2015). Variance inflation factor: As a condition for the inclusion of suppressor variable (s) in regression analysis. Open Journal of Statistics, 5(07), 754.
  • Baysinger, B., & Hoskisson, R. E. (1990). The composition of boards of directors and strategic control: Effects on corporate strategy. Academy of Management review, 15(1), 72-87.
  • Bromiley, P. (1991). Testing a causal model of corporate risk taking and performance. Academy of Management journal, 34(1), 37-59.
  • Carpenter, J. N. (2000). Does option compensation increase managerial risk appetite? The Journal of Finance, 55(5), 2311-2331.
  • Chourou, L., Abaoub, E., & Saadi, S. (2008). The economic determinants of CEO stock option compensation. Journal of Multinational Financial Management, 18(1), 61-77. doi: https://doi.org/10.1016/j.mulfin.2007.05.001
  • Coles, J. L., Daniel, N. D., & Naveen, L. (2006). Managerial incentives and risk-taking. Journal of Financial Economics, 79(2), 431-468.
  • DeFusco, R. A., Johnson, R. R., & Zorn, T. S. (1990). The effect of executive stock option plans on stockholders and bondholders. The Journal of Finance, 45(2), 617-627.
  • DeFusco, R. A., Zorn, T. S., & Johnson, R. R. (1991). The association between executive stock option plan changes and managerial decision making. Financial Management, 36-43.
  • Demsetz, H., & Lehn, K. (1985). The structure of corporate ownership: Causes and consequences. Journal of political economy, 93(6), 1155-1177.
  • Easterbrook, F. H. (1984). Two agency-cost explanations of dividends. The American Economic Review, 74(4), 650-659.
  • Faccio, M., Marchica, M.-T., & Mura, R. (2011). Large shareholder diversification and corporate risk-taking. The Review of Financial Studies, 24(11), 3601-3641.
  • Fama, E., French, K., Fenn, G. W., Liang, N., Busaba, W. Y., Benveniste, L. M., . . . Mian, S. (2001). 1. Disappearing dividends: changing firm characteristics or lower propensity to pay? Journal of Financial Economics, 60(1), 1-176.
  • FischerBlack, & MyronScholes. (1973). The pricing of options and corporate liabilities. Journal of political economy, 81(3), 637-654.
  • Guay, W. R. (1999). The sensitivity of CEO wealth to equity risk: an analysis of the magnitude and determinants. Journal of Financial Economics, 53(1), 43-71.
  • Hall, B. J., & Liebman, J. B. (1998). Are CEOs Really Paid Like Bureaucrats?*. The Quarterly Journal of Economics, 113(3), 653-691. doi: 10.1162/003355398555702
  • Hambrick, D. C., Cho, T. S., & Chen, M.-J. (1996). The influence of top management team heterogeneity on firms' competitive moves. Administrative science quarterly, 659-684.
  • Huddart, S., & Lang, M. (1996). Employee stock option exercises an empirical analysis. Journal of Accounting and Economics, 21(1), 5-43.
  • Jensen, M. C., & Murphy, K. J. (1990). Performance pay and top-management incentives. Journal of political economy, 98(2), 225-264.
  • Jolls, C. (1998). Stock repurchases and incentive compensation: National bureau of economic research.
  • Lacouture, M. E., Wu, S., Robert, C., Atkins, M. B., Kong, H. H., Guitart, J., . . . Alexandrescu, D. T. (2008). Evolving strategies for the management of hand–foot skin reaction associated with the multitargeted kinase inhibitors sorafenib and sunitinib. The oncologist, 13(9), 1001-1011.
  • Lambert, R. A., Larcker, D. F., & Verrecchia, R. E. (1991). Portfolio considerations in valuing executive compensation. Journal of Accounting Research, 129-149.
  • Lewellen, W., Loderer, C., & Martin, K. (1987). Executive compensation and executive incentive problems: An empirical analysis. Journal of Accounting and Economics, 9(3), 287-310.
  • Li, L., & Sanseau, P.-Y. (2013). Influential Factors Of Executives' Equity-Based Revenue In Chinese- Listed Companies. Jounal of Applied Business Research, 29(2), 379.
  • Luo, L. (2015a). Determinants Of Stock Option Use By Chinese Companies. The Journal of Applied Business Research, 31(4), 1355-1376.
  • Luo, L. (2015b). Determinants Of Stock Option Use By Chinese Companies. Journal of Applied Business Research, 31(4), 1355.
  • Murphy, K. J. (1999). Executive compensation. Handbook of labor economics, 3, 2485-2563.
  • Murphy, K. J., & Zábojník, J. (2004). CEO Pay and Appointments: A Market-Based Explanation for Recent Trends. American Economic Review, 94(2), 192-196. doi: doi: 10.1257/0002828041302262
  • Palmer, T. B., & Wiseman, R. M. (1999). Decoupling risk taking from income stream uncertainty: A holistic model of risk. Strategic Management Journal, 20(11), 1037-1062.
  • Rajgopal, S., & Shevlin, T. (2002). Empirical evidence on the relation between stock option compensation and risk taking. Journal of Accounting and Economics, 33(2), 145-171.
  • Ross, L., & Zhou, K. (2005). Trading and distribution in China The international journal of cometition policy and regulation.
  • Ross, S. A. (2004). Compensation, incentives, and the duality of risk aversion and riskiness. The Journal of Finance, 59(1), 207-225.
  • Ruefli, T. W., Collins, J. M., & Lacugna, J. R. (1999). Risk measures in strategic management research: auld lang syne? Strategic Management Journal, 20(2), 167-194.
  • Saunders, A., Strock, E., & Travlos, N. G. (1990). Ownership structure, deregulation, and bank risk taking. The Journal of Finance, 45(2), 643-654.
  • Schrand, C., & Unal, H. (1998). Hedging and coordinated risk management: Evidence from thrift conversions. The Journal of Finance, 53(3), 979-1013.
  • Singh, M., Davidson III, W. N., & Suchard, J.-A. (2003). Corporate diversification strategies and capital structure. The Quarterly Review of Economics and Finance, 43(1), 147-167.
  • Triki, T., & Ureche-Rangau, L. (2012). Stock Options and Firm Performance: New Evidence from the French Market. Journal of International Financial Management & Accounting, 23(2), 154-185. doi: 10.1111/j.1467-646X.2012.01057.x
  • Wright, P., Kroll, M., Krug, J. A., & Pettus, M. (2007). Influences of top management team incentives on firm risk taking. Strategic Management Journal, 28(1), 81-89.
  • Yermack, D. (1995). Do corporations award CEO stock options effectively? Journal of Financial Economics, 39(2), 237-269. doi: https://doi.org/10.1016/0304-405X(95)00829-4 Yermack, D. (1997). Good timing: CEO stock option awards and company news announcements. The Journal of Finance, 52(2), 449-476.
There are 40 citations in total.

Details

Primary Language English
Subjects Finance
Journal Section Articles
Authors

Ratny Seng This is me 0000-0002-6261-8223

Kimly Heng This is me 0000-0001-8818-1659

Gao-liang Tian This is me 0000-0002-7336-4759

Mohammad Arshad Arif This is me

Hua Feng This is me 0000-0003-3141-2545

Publication Date June 30, 2019
Published in Issue Year 2019

Cite

APA Seng, R., Heng, K., Tian, G.-l., Arif, M. A., et al. (2019). THE IMPACT OF MANAGERIAL STOCK OPTION ON FIRM RISK TAKING: EVIDENCE FROM CHINA. Journal of Business Economics and Finance, 8(2), 101-113. https://doi.org/10.17261/Pressacademia.2019.1041

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