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Wilfrid Laurier University Leaf
October 26, 2014

Canadian Excellence

Wendy Wu




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Wendy Wu

Optimal Executive Compensation: Stock Options or Restricted Stocks


Yan Wendy Wu

published: 2011 | Research publication | Research publication

"Optimal Executive Compensation: Stock Options or Restricted Stocks." Forthcoming at International Review of Economics & Finance

Abstract: This paper develops an agency model to analyze the optimality of executive stock option compensation in the presence of information manipulation. The analyses show that although information manipulation is positively related to the size of option compensation, the relative size of manipulation-to-effort does not depend on the size of option compensation. Furthermore, an optimal executive compensation package includes stock options instead of restricted stocks under most circumstances. Testable predictions on the relationship between optimal option exercise price and exogenous model parameters are derived.


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