Rank-and-File Employee Stock Options and Workplace Safety

We provide robust evidence that rank-and-file employee (R&F) stock options are negatively associated with employee injury rates. In cross-sectional analysis, we find that the documented effect is amplified among firms with greater scope for employee free-riding and financially constrained firms, while is mitigated (amplified) among firms with stronger labor union presence (higher employee turnover). We employ difference-in-differences analysis around the passage of FAS 123R option expensing regulation and instrumental variable estimation to establish causality. Our findings are consistent with the view that R&F stock options improve workplace safety by facilitating employee retention and cooperation and by mitigating firms’ financing frictions