Executive Stock Options as a Screening Mechanism

Abel Cadenillas, Jakša Cvitanic, Fernando Zapatero: The finance literature has shown that option grants can help to screen out lowability executives.

Author(s):

Abel Cadenillas

University of Alberta

Jaksa Cvitanic

EDHEC Business School

Fernando Zapatero

Marshall School of Business

In this paper we develop a framework that allows us to analyse when options are likely to be optimal for this purpose. We consider a dynamic setting with asymmetric information, in which risk-neutral firms hire risk-averse executives who can exercise costly effort and choose among a menu of risky projects. We show that the likelihood of using options increases with the dispersion of types and the size of the firm, and decreases with the availability of growth opportunities for the firm.

Type: Working paper
Date: le 06/02/2012
Research Cluster : Finance

See Also

The FIR-PRI Awards “Finance & Sustainability” prize for “best pedagogical innovation”: preparing future generations to fight climate change.
News
- 18-10-2021
At EDHEC, we want to take part in the fight against climate change. Through our...
Stanford Summer Program: one of EDHEC’s opportunities to grab
News
- 14-10-2021
Shantanu Khandelwal, Master 2 student had the opportunity to join the selective...
Immersion at Station F for start-up challenge finalists !
News
- 13-10-2021
Devised for students with start-up projects on the Pre-Master and Master 1 years of the...
Financing your MBA - are you eligible for a scholarship?
News
- 12-10-2021
How to finance your Global MBA abroad is a critical question you need to think about...