Using the agency, resource-based view, stakeholder, and stewardship theories, we investigate the relationship between chief executive officers' (CEOs') stock options, long-term debt, cash/sales turnover, and firm performance. Our empirical analysis suggests that these theories contribute to...

AbstractDivergent views exist about the impact of equity-based compensation on monitoring by Non-Executive Directors (NEDs) Prior studies report conflicting results mainly because of the endogeneity problem, which were not addressed or addressed using ineffective techniques. This study attempts...

In seeking to replace accounting ‘conventions’ by ‘concepts’ in the pursuit of principles-based standards, the FASB/IASB joint project on the conceptual framework has grounded its approach on a well-known definition of ‘income’ by Hicks. We welcome the use of theories by accounting...

Managers are involved in corporate management activities and actively intervene in major managerial decisions to make decisions that maximize firm profits. Since CEO's personal disposition influences the decision of risky investment project, the higher the CEO's overconfidence, the more...

We develop a model in which firms in financial distress design executive compensation contracts, hire and fire executives, and accept or reject government bailout funds that (if accepted) constrain the design of future compensation contracts. Using data from COMPUSTAT and ExecuComp (1992-2007)...

This paper conducts a first look into the regulated Bitcoin options market in the United States. Compared to stock options, bitcoin options tend to be ten times more illiquid as measured by bid-ask spreads. The illiquidity significantly affects bitcoin options pricing: Given that investors are...

Many attempts have been made to estimate market characteristics from options prices, none more well known than the Black Scholes model. Yet, no options pricing model is without significant criticism. And none are consistent with the characteristics of the market discussed in this paper. Prior to...

Securities regulation must balance the dual objectives of mitigating market abuse and permitting issuers to manage their capital flexibly and efficiently. This paper examines this issue in the specific context of the regulation of share buybacks within the insider dealing framework in a...

This study aims to verify the effect of stock option compensation paid to executives on company’s earnings volatility. To this end, we looked at the impact of stock option compensation on executives' decision-making under economic policy uncertainty (EPU). We empirically demonstrated that...

We survey a growing field studying aspects of finance that are potentially illegal, illicit, or immoral. Some of the literature is investigative in nature to uncover malfeasance that is recent and possibly ongoing. Other forensic finance research examines past events to generate a fuller...

This study investigates the response of stock prices and equity options to negative ESG incidents reported by RepRisk for S&P 500 companies between 2006 and 2021, considering the increasing significance of ESG ratings among fund managers and the widespread utilization of financial derivatives by...

In this paper, we propose a cross-sectional option momentum strategy that is based on the risk component of delta-hedged option returns. We find strong evidence of risk continuation in option returns. Specifically, options with a high risk component significantly outperform those with a low risk...

We document profitable cross-sectional and time-series momentum in a broad set of 56 option factors constructed from monthly sorts on daily delta-hedged option positions. Option factor returns are highly autocorrelated, but momentum profits of strategies with longer formation periods are mainly...

Equity pay has been the primary component of managerial compensation packages at US public firms since the early 1990s. Using a comprehensive sample of top executives from 1992-2020, we estimate to what extent they trade firm equity held in their portfolios to neutralize increments in ownership...

This study examines whether the CEO uses share repurchases to sell her equity grants at inflated stock prices, a concern regularly voiced in politics and media. We find that the timing of buyback programs and equity compensation, i.e., the granting, vesting, and selling of equity, is largely...

This article presents a systematic review of the theoretical and empirical literature on option grants and managerial risk taking. One of the objectives is the motivation of further research on the topic. Risk-averse managers hold less diversified portfolios and, thus, tend to take less risk...

Purpose: The nature of each component of executive compensation varies, resulting in variances in executive in- centives and investor pricing. To examine whether there is a differential relation between executive compensation components and cost of equity capital, this study decomposes the...

We document evidence that the CEOs who lead the firms that face higher climate change risk (CCR) receive higher equity-based compensation. Our finding is consistent with the compensating-wedge-differential theory and survives numerous robustness and endogeneity tests. The result is more...

We show that much of the profitability in equity option return strategies, which try to capture option mispricing by taking exposure to underlying volatility, can be explained by an IPCA model. The alpha reduction, relative to competing static factor models, is between 50% and 75% depending on...

This paper considers new options on Treasury and stock futures than expire each Wednesday and Friday. I examine the volatilities implied by these options as of the night before expiration, and compare the volatilies just before FOMC days and employment report days with the volatilities on other...

We examine whether individual-level taxes affect executives’ propensity to use nonpublic information in insider trades. We predict and find a positive relation between abnormal insider trading profitability and income tax rates. Using plausibly exogenous variation in state income tax rates, we...

While the literature appeals to efficiency arguments from agency theory to explain the relative rise of CEO equity compensation, prior work has given less focus to CEO pay contracts based on equity and cash incentives that directly (analytically) maximize the total return of firm owners. The...

We examine whether pay differentials between the chief executive officer (CEO) and vice presidents (VPs) can be explained by firms’ strategic priorities. We find that firms that pursue prospector-type strategies have a larger CEO−VP difference in equity compensation. We argue that such a pay...

We investigate the equilibrium interest rate charges on non-recourse and recourse loans secured by stock. In such loans the client retains the option to prepay and recover the collateral stock. We adopt a structural model of the firm where debt levels, with endogenous bankruptcy, affect equity...

This paper conducts a first look into the regulated Bitcoin options market in the United States. We find bitcoin options to be ten times more illiquid than stock options, as measured by bid-ask spreads. The illiquidity significantly affects bitcoin options pricing: Given that investors are on...

We show that much of the profitability in equity option return strategies, that try to capture option mis-pricing by taking exposure to underlying volatility, can be explained by an IPCA model. The alpha reduction, relative to competing static factor models, is between 50% and 75% depending on...

The increasing adoption of Digital Assets (DAs), such as Bitcoin (BTC), rises the need for accurate option pricing models. Yet, existing methodologies fail to cope with the volatile nature of the emerging DAs. Many models have been proposed to address the unorthodox market dynamics and frequent...

This paper analyzes the accounting behavior of firms whose single stock futures are listed in the Korea Exchange (KRX) derivatives market. We find that firms have higher financial reporting quality and more disclosures after single stocks are listed in the future market. Our findings provide...

This paper presents a novel and unique measure of cross-sectional uncertainty constructed from stock options on individual firms. Cross-sectional uncertainty varied little between 1980 and 1995, and subsequently had three distinct peaks -- during the tech boom, the financial crisis, and the...

This paper conducts a first look into the regulated Bitcoin options market in the United States. Compared to stock options, bitcoin options tend to be ten times more illiquid as measured by bid-ask spreads. The illiquidity significantly affects bitcoin options pricing: Given that investors are...

This paper examines CEOs’ holding and trading of the unconstrained firm stock they own, i.e., vested and sellable firm shares. I first develop a theoretical model of why CEOs hold sellable shares in their own firm when doing so is riskier than holding a more diversified portfolio. In this...

We examine whether stock option and restricted stock grants motivate higher performance using employee-level data from Google. Employees who received more equity grants than peers hired at the same time and job grade perform slightly better in the future across a variety of measures. To attempt...

This paper examines the cross-section of CDS returns by forming CDS portfolios based on the implied volatility curves of equity options. We document that CDS protection seller positions earn higher average returns for: (i) firms with higher at-the-money implied volatility and (ii) firms with...

Relatively few people participate in the stock market. We investigate whether getting employee stocks as part of one’s compensation makes people more likely to actively invest in stocks. We find the probability of actively participating in the stock market increases by 15% for those who have...

This paper conducts a first look into the regulated Bitcoin options market in the United States. Compared to stock options, bitcoin options tend to be ten times more illiquid as measured by bid-ask spreads. The illiquidity significantly affects bitcoin options pricing: Given that investors are...

Jensen and Meckling (1976) claim that by facilitating monitoring of firms’ activities, security analysis by financial analysts can reduce agency costs between management and external capital providers, and thereby increase shareholder value. Additionally, boards are required to design...

This study examines whether the CEO uses share repurchases to sell her equity grants at inflated stock prices, a concern regularly voiced in politics and media. We find that the timing of buyback programs and equity compensation, i.e., the granting, vesting, and selling of equity, is largely...

We examine the prevalence, determinants, and consequences of cheap stock. “Cheap stock” refers to equity-based compensation valued at less than fair value. Cheap stock grants have drawn regulators’ attention, with the SEC frequently commenting on issues related to cheap stock when...

Research Question/Issue: Does inside debt compensation affect previous thought on compensation effects in IPOs? What explains variation in compensation when a company goes public? What is the composition of CEO compensation in an IPO? What types of compensation may be more optimal for or are...

Compound options are options for which the underlying is another option. In other words, a compound option is an option written on an option. In this paper, we present two new approaches to compound option pricing. The first approach relies on Malliavin calculus methods and the Clark-Ocone...

The implied volatilities provided by OptionMetrics in the IvyDB database suggest substantial deviations from put-call parity that do not really exist. In S&P 500 options, artificial deviations occur because OptionMetrics uses non-synchronous index and option prices and an average implied...