The effect of executive stock option delta and vega on the spin-off decision

Mieszko Mazur, Galla Salganik-Shoshan

Research output: Contribution to journalArticlepeer-review

3 Scopus citations

Abstract

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.

Original languageEnglish
Pages (from-to)132-144
Number of pages13
JournalQuarterly Review of Economics and Finance
Volume72
DOIs
StatePublished - 1 May 2019

Keywords

  • Divestiture
  • Executive compensation
  • Firm risk
  • Firm value
  • Spin-off
  • Stock option delta
  • Stock option vega

ASJC Scopus subject areas

  • Finance
  • Economics and Econometrics

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