Volume 16, Numbers 3 & 4 / September/December , Pages 155-301
Australian Evidence on CEO Option Grants
Multinational Finance Journal, 2012, vol. 16, no. 3/4, pp. 225-260
Jean Canil , University of Adelaide, Australia    Corresponding Author
Bruce Rosser , University of Adelaide, Australia

Abstract:
We test the option incentive models of Hall and Murphy (2000, 2002) and Choe (2003). Hall and Murphy (2000, 2002) posit optimal grant size and exercise price contingent on the executive’s levels of risk aversion and private diversification. Choe (2003) relates these choices to firm characteristics, principally the target risk level and financial leverage. A unique hand-collected data set of Australian grants is employed, wherein exercises prices and grant sizes are unconstrained by taxation and accounting practices. The Hall and Murphy (2000, 2002) model is found to explain observed exercise prices while neither model satisfactorily explains grant sizes. However, there is some evidence that CEO influence is associated with larger grants than posited by these optimal incentive models, but does not impact on exercise prices.

Keywords : Executive; stock options; optimal; grant size; exercise price; governance
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