Stock Options for Undiversified Executives

By Brian J. Hall, Kevin J. Murphy. 2002

1,269 citations recorded by the source corpus.

Subfields: Finance, Strategy and Management

View Paper: https://www.semanticscholar.org/paper/91446109af0ba85a342b3a260e111b5738967dbb

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Citations in the corpus

How does owners’ exposure to idiosyncratic risk influence the capital structure of private companies? (2008, neutral): “(1991), Meulbroek (2001), Hall and Murphy (2002) and Kahl et al.”
Debt Capacity, Cost of Debt and Corporate Insurance (2008, neutral): “In the spirit of Hall and Murphy (2002), we measure managerial ownership as the natural logarithm of the market value of managerial shareholdings.”
Stewards, Agents, and the Founder Discount: Executive Compensation in New Ventures (2006, background): “Founders view their companies as extensions of themselves (Handler , 1990; Levinson, 1971), some to such an extent 1 It should be noted that such estimates of the value of executive equity holdings are relatively uncertain even in studies of public company compensation (Hall & Murphy , 2002).”
Board Characteristics, Managerial Incentives, and the Choice Between Foreign Acquisitions and International Joint Ventures (2009, background): “It is not surprising that, in recent years, stock options have become an important element of top management compensation in the United States and often constitute the largest component of CEO compensation (Conyon, 2006; Hall & Murphy, 2002).”
Behavioral CEOs: The Role of Managerial Overconfidence (2015, methodology): “The 40 percent threshold comes from a calibration of the Hall and Murphy (2002) model of rational option exercise using a constant relative risk aversion coefficient of three and assuming the CEO holds 67 percent of personal wealth in company stock.”
Executive Compensation: A New View from a Long-Term Perspective, 1936-2005 (2010, methodology): “Using a certainty equivalent approach, Hall and Murphy (2002) show that the executive’s value of an option can range between 2% and 72% of the Black–Scholes value under reasonable assumptions of risk aversion and outside wealth holdings.”
Price versus Non‐Price Performance Measures in Optimal CEO Compensation Contracts (2003, neutral): “Consistent with this explanation, the median executive bonus plan in Murphy (2000) includes 122 employees in addition to the CEO.”
CEO Optimism and Incentive Compensation (2014, positive): “…from a CEO with unbiased beliefs.5 The intuition behind this approach is that a risk-averse CEO is expected to reduce his exposure to company-specific risk by exercising his stock options early if they are sufficiently deep in the money (see, e.g., Hall and Murphy, 2002; Huddart and Lang, 1996).”
Are Overconfident CEOs Better Leaders? Evidence from Stakeholder Commitments (2017, positive): “money stock options may under-diversify the CEO’s wealth (Hall and Murphy, 2002), it may also provide the benefit of significant leadership for at least three reasons.”
The causal effect of option pay on corporate risk management (2016, positive): “…an alternative measure to vega we use a certainty equivalent approach to estimate CEO risk-seeking incentives that incorporates both CEO’s risk aversion and under-diversification (see Lambert, Larcker and Verrecchia (1991), Hall and Murphy (2002), Lewellen (2006), and Chava and Purnanandam (2010)).”
The translation of corporate governance changes across national cultures: the case of Germany (2005, background): “Senior managerial employees are a special, undiversified subset of total employees (Hall and Murphy, 2002) who may collude with other employees in these arrangements In these circumstances, a cultural inheritance of even moderately high Uncertainty Avoidance and Collectivism may be expected to…”
Generalists versus specialists: Lifetime work experience and chief executive officer pay (2013, background): “Furthermore, a risk-averse CEO should demand a pay premium for accepting the increased risk of equity-based pay (e.g., Hall and Murphy, 2002; Conyon, Core and Guay, 2011; and Edmans and Gabaix, 2011).”