Essays on performance-vested stock options and corporate governance

Promotie: dhr. B. Qin, 16.15 uur, Academiegebouw, Broerstraat 5, Groningen

Proefschrift: Essays on performance-vested stock options and corporate governance

Promotor(s): prof.dr. J. van der Meer-Kooistra, prof.dr. A. van Witteloostuijn

Faculteit: Economie en Bedrijfskunde

Contact: Qin Bo, tel. 950-363 4006, e-mail: b.qin@rug.nl

The incentive effect of PVSOs

This study of Bo Qin aims at assessing the incentive effect of performance-vested stock options (PVSOs) in the context of corporate governance. He also examined the role of corporate goverance in determining the presence and level of the PVSO awards. PVSOs can outperform traditional stock options by better aligning the interests of shareholders and managers. Corporations with severe principal-agent problems and week corporate governance features will adopt PVSO plans early; However, these early adopters may symbolically employ PVSO plans in order to placate activist investors and alleviate external criticism on the disputative compensation practices. And the executives with more controlling power over the board will try various means to get away from PVSOs, given that PVSOs impose additional difficulties to executive pay. Stock options could generate considerable risk-taking incentives by providing top managers with limited downside risk together with unlimited upside potential. CEO risk-taking incentives stemming from stocks and stock options are captured in the credit rating grades given by rating agencies, which reflect on the overall credit risk of the company concerned.