CEO Stock Options and Shareholder Return: Empirical Evidence from the UK
University of Bath Working Paper
17 Pages Posted: 20 Mar 2003
Date Written: November 1, 2002
The purpose of this study is to estimate the extent to which shareholder return influences changes in CEO option values. This study builds on prior research by employing two contrasting methods of valuing options, the Black and Scholes and the MSO option pricing models. Data was collected from the period 1993 to 1999 from a sample of UK publicly held firms. The magnitude of the sensitivities, as measured by the slope coefficients, were found much larger for the MSO as opposed to the Black-Scholes models suggesting that small increases in share price have an exponential effect on option valuations: a finding not captured by prior research. Moreover, the MSO suggest the alignment of interests between the CEO and shareholder may be much closer than suggested by prior research.
Keywords: UK, CEO, stock options, share options, Black Scholes model, MSO model, executive
JEL Classification: G12, G39, J33
Suggested Citation: Suggested Citation