GRADUATE SCHOOL OF MANAGEMENT

1
GRADUATE SCHOOL OF MANAGEMENT
ZACHARIAS SAUTNER, University of
Oxford, SaidBusiness School, December 12, 2005
1045 - 1200 Seminar GSM Building Room
1073 Subject Corporate Governance and the
Design of Stock Option Programs
ABSTRACT Investors and academics
increasingly criticize that features of employee
stock option (ESO) programs reflect
rent-extraction by managers (managerial power
view). We use a unique European data set to
investigate the relationship between the design
of ESO programs and corporate governance
structures. We find that ownership structures are
related to the ESO design in a way that is
consistent with the managerial power hypothesis
when ownership concentration is low and the
exposition to the U.S. capital market is little,
executives extract rents by designing poor ESO
plans. Moreover, firms with weak creditor rights
more often have badly designed option plans. Our
findings also suggest that ineffective board
structures (insider-dominated boards) are related
to ESO design in a way that supports the
arguments of the self-dealing view.  
YBF