TY - JOUR
T1 - The effect of executive stock option delta and vega on the spin-off decision
AU - Mazur, Mieszko
AU - Salganik-Shoshan, Galla
N1 - Publisher Copyright:
© 2018 Board of Trustees of the University of Illinois
PY - 2019/5/1
Y1 - 2019/5/1
N2 - We investigate the role of CEO incentives around asset restructuring known as corporate spin-off. More specifically, we focus on executive stock option delta and vega vis-à-vis changes in firm value and firm riskiness in response to the corporate spin-off. Controlling for self-selection of the spin-off decision, we find that executive stock option vega is positively related to changes in firm value as well as changes in firm risk. Conversely, we find that executive stock option delta is negatively related to changes in firm value and firm risk. Finally, we estimate the Fazzari et al. (1988) investment model and show that at the business segment level, CEO incentives are positively linked to capital spending. Overall, our study extends the current literature by documenting the role of executive stock option delta and vega in the context of corporate spin-offs.
AB - We investigate the role of CEO incentives around asset restructuring known as corporate spin-off. More specifically, we focus on executive stock option delta and vega vis-à-vis changes in firm value and firm riskiness in response to the corporate spin-off. Controlling for self-selection of the spin-off decision, we find that executive stock option vega is positively related to changes in firm value as well as changes in firm risk. Conversely, we find that executive stock option delta is negatively related to changes in firm value and firm risk. Finally, we estimate the Fazzari et al. (1988) investment model and show that at the business segment level, CEO incentives are positively linked to capital spending. Overall, our study extends the current literature by documenting the role of executive stock option delta and vega in the context of corporate spin-offs.
KW - Divestiture
KW - Executive compensation
KW - Firm risk
KW - Firm value
KW - Spin-off
KW - Stock option delta
KW - Stock option vega
UR - http://www.scopus.com/inward/record.url?scp=85057053581&partnerID=8YFLogxK
U2 - 10.1016/j.qref.2018.11.003
DO - 10.1016/j.qref.2018.11.003
M3 - Article
AN - SCOPUS:85057053581
SN - 1062-9769
VL - 72
SP - 132
EP - 144
JO - Quarterly Review of Economics and Finance
JF - Quarterly Review of Economics and Finance
ER -