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The effects of executive share options and investment opportunities on firms’ accounting performance: some Australian evidence

journal contribution
posted on 2006-09-01, 00:00 authored by M Hutchinson, Ferdinand GulFerdinand Gul
This paper provides evidence that firms with high investment opportunities and share options are associated with lower agency costs measured in terms of better accounting performance. The results of this study of 753 observations of 251 Australian firms over the three years 1998–2000 show that firms with high growth and executive share option plans are associated with better firm performance. In addition, this study shows that executives have greater risk-bearing preferences at higher option levels. That is, it is the combination of both high growth opportunities and high levels of options that is associated with higher financial performance. The results of this study suggest that it is economically irrational for low growth firms to use options as a means to motivate executives to increase firm performance. Further analysis revealed that these associations are not endogenously determined.

History

Journal

British accounting review

Volume

38

Pagination

277-297

Location

Amsterdam, The Netherlands

ISSN

0890-8389

Language

eng

Publication classification

C Journal article, C1.1 Refereed article in a scholarly journal

Copyright notice

2006, Elsevier

Issue

3

Publisher

Elsevier