Title: CEO compensation and timing of Executive Stock Option exercises

Authors: Ahmad Ibn Ibrahimy; Rubi Ahmad

Addresses: Faculty of Business and Accountancy, University of Malaya, 50603 Kuala Lumpur, Malaysia ' Faculty of Business and Accountancy, University of Malaya, 50603 Kuala Lumpur, Malaysia

Abstract: This study examines the relationship between Executive Stock Option (ESO) exercise and firm performance in Malaysia for the period 2002-2008. We found a significant positive relationship between ESO exercise and firm performance for both market and accounting-based performance measures using data on ESO exercising from 201 non-financial companies. Our panel data analysis of fixed effect estimation indicated that Malaysian executives are most likely to exercise their options immediately after they are granted; suggesting intended behaviour of adopting ESOs rather than maximising the shareholders' wealth as governance mechanism. This early exercise pattern of Malaysian executives also indicates that executives are averse to the risk.

Keywords: agency problem; compensation policy; corporate governance; ESO exercising; executive stock options; firm performance; governance mechanisms; Malaysia; management compensation; ROA; return on assets; Tobin's q; CEO compensation; Chief Executive Officer.

DOI: 10.1504/IJBGE.2013.054415

International Journal of Business Governance and Ethics, 2013 Vol.8 No.2, pp.101 - 115

Received: 08 May 2021
Accepted: 12 May 2021

Published online: 08 Jun 2013 *

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