CEO option compensation and the capital structure decision are simultaneously made choices. Using the Internal Revenue Code 162(m) tax law as an exogenous shock to compensation structure in a natural experiment setting, I can identify firm leverage changes as a result of CEO option compensation...

This paper studies the effect of risk-taking incentives provided in managerial compensation on corporate debt maturity choices. The Financial Accounting Standard (FAS) 123R is used as a quasi-natural experiment to establish causality. FAS 123R requires firms to expense stock options at fair...

We develop a continuous-time structural model to characterize the manager-shareholder conflict over the choice of dynamic investment when the manager is compensated with cash salary, stock and option. We then focus on investigating the dissimilar impact of stock and option compensations on the...

We examine whether values of equity options traded on individual firms are sensitive to the firm's capital structure. Specifically, we estimate the compound option (CO) model, which views equity as an option on the firm. Compared to the Black-Scholes (BS) model, the CO model reduces pricing...

We test one of the main predictions of the financial flexibility paradigm that expectations about future firm-specific shocks affect the firm's leverage. We extract the expectations of small and large future shocks from the market prices of equity options. We find that expectations for future...

​This paper investigates the potential effects of stock options on managers' investment decisions and therefore on a firm's growth or, alternatively, on its leverage-growth relationship. To structure the analysis addressing this issue, the paper utilizes a framework establishing a negative...