Executive Stock Options and the Mediation of Stockholder-Bondholder Conflicts

摘要: Financial leverage does not distort investment decisions if executives are paid to maximize total firm value rather than equity value. Existing models of this idea imply that stock-based incentives should be negatively related leverage, a prediction has little empirical support. We show the risk distortions induced by financial can overcome without diluting effort adjusting exercise price executive stock options. also necessary adjustments similar common practice granting options at-the-money. then empirically examine option plans in large sample Canadian firms. The evidence consistently supports hypothesis mitigate risk-taking shareholders levered