CEO Stock Options and Shareholder Return: Empirical Evidence from the UK

University of Bath Working Paper

17 Pages Posted: 20 Mar 2003

See all articles by Cyril Tomkins

Cyril Tomkins

University of Bath - School of Management

Phillip J. McKnight

University of St. Andrews - School of Management

Date Written: November 1, 2002

Abstract

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

Tomkins, Cyril and McKnight, Phillip J., CEO Stock Options and Shareholder Return: Empirical Evidence from the UK (November 1, 2002). University of Bath Working Paper, Available at SSRN: https://ssrn.com/abstract=350820 or http://dx.doi.org/10.2139/ssrn.350820

Cyril Tomkins

University of Bath - School of Management ( email )

Claverton Down
Bath, BA2 7AY
United Kingdom
+441 61 225-826-826 (Phone)
+441 61 225-826-473 (Fax)

Phillip J. McKnight (Contact Author)

University of St. Andrews - School of Management ( email )

The Gateway
Gateway
St. Andrews, Fife KY16 9SS
United Kingdom

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