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

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

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