Restructuring decisions and executive stock options in financially distressed firms

Hsiu Ying Lee, Yi Mien Lin, Li-Kai Liao, Chin Rong Chen

Research output: Contribution to journalArticle

Abstract

Agency theory indicates that management ownership might reduce the conflict of interests between managers and stockholders. Several studies have supported the argument that executive compensation plans can motive executives to enhance firm performance and maintaining profit. This paper examines whether the compensation of executives through stock options influences the firm's restructuring or liquidation decisions. The findings suggest that, the higher equity incentive and the lower the value of executive stock option in executives' compensation plan, the more restucturing decisions the executive will make, even when these choices could accelerate the firm's failure. Nevertheless, there is only weak evidence that replacing the executive will increase the likelihood of restructuring decisions over liquidation decisions when the firm is facing financial distress.

Original languageEnglish
Pages (from-to)197-212
Number of pages16
JournalInternational Research Journal of Finance and Economics
Volume55
Publication statusPublished - 2010 Nov

Fingerprint

Executive stock options
Liquidation
Executive compensation
Profit
Financial distress
Conflict of interest
Equity incentives
Stock options
Agency theory
Management ownership
Managers
Stockholders
Firm performance

All Science Journal Classification (ASJC) codes

  • Finance
  • Economics and Econometrics

Cite this

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Restructuring decisions and executive stock options in financially distressed firms. / Lee, Hsiu Ying; Lin, Yi Mien; Liao, Li-Kai; Chen, Chin Rong.

In: International Research Journal of Finance and Economics, Vol. 55, 11.2010, p. 197-212.

Research output: Contribution to journalArticle

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