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Stock vesting conditions, control benefits and managerial replacement
Author(s) -
AdachiSato Meg
Publication year - 2018
Publication title -
canadian journal of economics/revue canadienne d'économique
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 0.773
H-Index - 69
eISSN - 1540-5982
pISSN - 0008-4085
DOI - 10.1111/caje.12323
Subject(s) - vesting , deferral , stock options , stock (firearms) , business , executive compensation , compensation (psychology) , finance , economics , corporate governance , engineering , mechanical engineering , art , psychology , psychoanalysis , visual arts
This article considers the effect of vesting conditions of stock‐based compensation on firms’ decisions to replace managers. I indicate that firms may excessively replace managers with both long‐ and short‐term vested stock‐based compensation, while excessive retention can be caused only by short‐term vested options. If the discount factor is sufficiently small, I also show that short‐term vested stock‐based compensation is the equilibrium contract. The study also has implications for regulations concerning mandatory deferral and clawback of executive pay.