The Short- and Long-Term Performance Effects of Implementing Executive Stock Option Compensation Programs

Abstract

This study examined the effect of implementing executive stock option compensation schemes on firm performance, specifically focusing on the US IT Sector from 2000-2022. To accomplish this, a theoretical background was first established with previous works on the subject. Then, an event study methodology and a multiple linear regression were employed to examine the causality in both the short- and long-term. The previous works pointed to a weak but positive relationship, with a cyclical component being present. The results from the event study confirmed that the market exhibits positive sentiment when presented with the implementation of an executive stock option compensation scheme. Furthermore, the multiple linear regression confirmed a relationship between the issuance of executive stock options and improved performance in the long-term, and highlighted the presence of cyclical effects. These results both confirmed and built upon previous works’ conclusions. Future research was urged to delve deeper into the subject.