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The Effects of Executive Stock Option and Employee Stock Option on the Stock Returns in China

  • Journal of Asia-Pacific Studies
  • Abbr : JAPS
  • 2018, 25(2), pp.105-129
  • DOI : 10.18107/japs.2018.25.2.005
  • Publisher : Institute of Global Affairs
  • Research Area : Social Science > Social Science in general
  • Received : May 23, 2018
  • Accepted : June 19, 2018
  • Published : June 30, 2018

Zheng-Wei Yang 1 Kim, Sung-Hwan 1

1경북대학교

Accredited

ABSTRACT

This paper studies the market effects of stock option compensation on firm values in China. Using the combined 240 firm data of RESSET and GTA databases from 2006 till 2014, we perform empirical tests whether stock options play a role as incentive and compensation schemes for executives and employees with expertise and technology in a way reduce the agency cost between agencies like executives and employees. We perform the empirical tests for 40 trading days around the announcement day. The main test results are summarized as follows. First, the empirical test results show a higher abnormal returns and cumulative abnormal returns around the announcement date. Second, the amount of stock option, both executive option and core-technology option, do not have any statistically significant effect on short-run CARs. Third, the dispersion of stock option, both executive option and core-technology option, measured by the ratios of numbers of option recipients to total employees, has a statistically significant positive effect on one-year HPRs (holding period returns). The results with respect to the announcement effects are basically same as those of the prior studies while the long-run effects of stock options are contradictory to the prior studies that report positive effects of stock options. Our results also support some of prior studies which the positive effect of wide dispersion of stock option endowment contributes on stock market returns.

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