Executive compensation and firm performance in New Zealand: The role of employee stock option plans
We examine the role of employee stock option plans
(ESOPs) in mitigating agency problems in New Zealand firms. We find that
ESOPs have a significant and positive effect on firm performance relative to
their non-ESOP counterparts. This relation appears within a year from the
first ESOP announcement, and for two to four years after the announcement.
Our results show that ESOPs improve corporate performance by 10 times the
cost of the ESOPs’ adoption in the first year of issue. The improvement
persists for four years after the first issuance. These findings confirm the
effectiveness of employee stock option plans for companies issuing ESOPs
compared with companies that do not issue ESOPs, and show how much the value
creation of ESOPs contributes to these firms.