THE EFFECTS OF STOCK OPTION COMPENSATION ON MANAGERIAL RISK TAKING BEHAVIOR AND FIRM FINANCIAL PERFORMANCE THE GLOBAL FINANCIAL CRISIS FROM A DIFFERENT PERSPECTIVE

Yıl 2012, Cilt: 4 Sayı: 2, 77 - 90, 01.12.2012

Guler Aras Duygu Kurt

Öz

The aim of this study is to figure out whether managerial risk taking behaviour and firm financial performance is effected by stock option compensation. In literature stock option compensation is mentioned as a means to solve agency problems. It is analysed how stock option compensation aligns the shareholders’and managers’ interests and its effects on firm financial performance. Additionally, it is investigated whether this effect has a link to the global financial crisis which has obviously related to the managers’ extreme risk seeking behaviour especially in financial sector. In this study, 189 firms from S&P index are analysed utilizing the panel data analysis method between years 1998-2009. Additionally, regression method is used to measure each year. The data set is grouped as financial and non financial sector to better present the effects of global financial crisis. According to the results of this study, stock option compensation is positively related to investment magnitudes which are taken as indicators of risk taking behavior. On the other hand, it is negatively related to firm financial performance. According to the results of yearly comparison, in financial sector the invesment magnitudes are bigger than the non financial sector just two years before the financial crisis and net cash flow from the investing activities is significantly negative when compared with non financial sector. Therefore, it is aimed to find out the relation between the extreme risk seeking behavior before the global financial crisis and the incentive compensation structures

Anahtar Kelimeler

Agency Theory, Risk Taking Behavior, Stock Option Compensation, Firm Financial Performance, S&P 500, Panel Data Regression

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• The percentage of stock option pay in total compensation ROA 0.0589** (-2.07) 0.0592** (-2.09) 0318 (1.21) 1.7759 (-1.60) 1.0787 (-0.90) 2452*** (3.12) 49 0002 2420 Prob > chi2 Legend * p<0.10; ** p<0.05; *** p<0.01