Impact of stock option compensation plans for the top management on the performance of the Bel20 firms

Abstract

This thesis focuses on the impact of granting stock options as part of the top executives’ compensation on the subsequent market performance of the Bel20 firms. Special attention has been given to the characteristics of the options i.e. their grant size, their fair value and the length of their vesting period. Using data related to stock options granted over the period 2006-2013 for the Bel20 firms, we found that the firm performance subsequent to the grant is positively correlated with the grant size and the fair value of the options granted. Our results suggest that large grants and valuable stock options at granting provide top executives with high incentives, leading to a higher firm performance the year following the grant. Overall, our results support the agency theory developed by Jensen & Meckling (1976).