The impact of executive share
Executive share options are often cited as performance incentives that alignmanagement and shareholder interest. This research report examines the impact ofexecutive share options on company performance and test if there is a significantdifference in performance between companies with different levels of share options.The problem is defined in two parts, one looking at company performance and theother management decision making. It employ share price cumulative annualreturns, average Tobin’s Q and average return on assets over five years to definecompany performance. While the influence of management decision making isdefined through the average dividend yield and debt/equity ratio over five years.This research report ignored the variability and risk component associated withshare options and the performance and management decision making variables. Italso excludes any attempt to comment on the effectiveness of share options as partof executive compensation. A regression analysis and two T-tests were employedon a sample of 203 JSE listed companies. Reliable data was sourced directly fromtwo financial market data specialist. With the exception of ROA there was asignificant statistical relationship between share options and the respectivevariables. However, these findings cannot be accepted as conclusive due to theviolation of many normality assumptions. There was no evidence of any significantstatistical difference between companies with higher than the mean or lower thanthe mean share option ratio, with the exception of Tobin’s Q. In contrast to this asecondary T-test revealed evidence of a significant statistical difference betweenthe mean return on assets and mean dividend yield for companies with andcompanies without share options. While there was no evidence of any significantstatistical difference between the mean cumulative annual average returns, Tobin’sQ and debt/equity ratio of companies with share options and those without. Thisleads one to conclude that share options do not have a significant impact oncompany performance
Year of publication: |
2011-04-15
|
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Authors: | Jacobs, Fredell |
Subject: | Share options | Company performance |
Saved in:
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