{"title":"The information content of options trading for the CEO employee pay ratio","authors":"Pei-Fang Hsieh, Zih-Ying Lin","doi":"10.1007/s11156-024-01307-y","DOIUrl":null,"url":null,"abstract":"<p>This research examines how option trading activity reduces information asymmetry through the CEO’s and ordinary employee’s awareness of firm value and their pay related to firm performance. Our findings demonstrate that companies with more options trading activity have a higher CEO-employee pay ratio, which is consistent with the tournament theory. Option trading illustrates that both CEOs and employees understand their relevant payment based on the precise firm value. This advantage of option trading becomes weak for firms with higher profitability, for employees with more bargaining power, and for CEOs with a higher risk incentive.</p>","PeriodicalId":47688,"journal":{"name":"Review of Quantitative Finance and Accounting","volume":"159 1","pages":""},"PeriodicalIF":1.9000,"publicationDate":"2024-06-16","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":"0","resultStr":null,"platform":"Semanticscholar","paperid":null,"PeriodicalName":"Review of Quantitative Finance and Accounting","FirstCategoryId":"1085","ListUrlMain":"https://doi.org/10.1007/s11156-024-01307-y","RegionNum":0,"RegionCategory":null,"ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":null,"EPubDate":"","PubModel":"","JCR":"Q2","JCRName":"BUSINESS, FINANCE","Score":null,"Total":0}
引用次数: 0
Abstract
This research examines how option trading activity reduces information asymmetry through the CEO’s and ordinary employee’s awareness of firm value and their pay related to firm performance. Our findings demonstrate that companies with more options trading activity have a higher CEO-employee pay ratio, which is consistent with the tournament theory. Option trading illustrates that both CEOs and employees understand their relevant payment based on the precise firm value. This advantage of option trading becomes weak for firms with higher profitability, for employees with more bargaining power, and for CEOs with a higher risk incentive.
期刊介绍：
Review of Quantitative Finance and Accounting deals with research involving the interaction of finance with accounting, economics, and quantitative methods, focused on finance and accounting. The papers published present useful theoretical and methodological results with the support of interesting empirical applications. Purely theoretical and methodological research with the potential for important applications is also published. Besides the traditional high-quality theoretical and empirical research in finance, the journal also publishes papers dealing with interdisciplinary topics.
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