Employee stock options (ESOs) are nontransferable and employees are generally not well diversified compared to outside shareholders. These features of ESOs imply that employee option holders may optimally exercise their options significantly early relative to what would be expected for ordinary...

We provide an examination of the use of zero-cost collars and equity swaps by corporate insiders to hedge the risk associated with their personal holdings in the company's equity. These financial instruments have important implications for insider trading and incentive-based contracts. Our...

Zero-cost collars and equity swaps provide insiders with the opportunity to hedge the risk associated with their personal holdings in the company's equity. Consequently their use has important implications for incentive-based contracting and for understanding insider-trading behavior. Our...

While existing literature on equity-based compensation is focused heavily on stock option and restricted stock awards that carry simple time-based vesting restrictions, we find that more complicated performance-based vesting provisions are quite common. We construct and analyze a novel dataset...

We study derivative instruments that corporate insiders use to diversify and hedge their equity ownership. Our evidence suggests that boards might allow use of these instruments in order to mitigate agency costs associated with overvalued equity and high equity-based pay. These instruments are...

The usage of performance-vesting (p-v) equity awards to top executives in large U.S. companies has grown from 20 to 70 percent from 1998 to 2012. We measure the effects of p-v provisions on value, delta, and vega of equity-based compensation. We find large differences in the value of p-v awards...

Using data that includes specific contractual details of Relative Performance Evaluation (RPE) contracts granted to executives for 1,833 firms for the period 1998 to 2012, we develop new methods to characterize RPE awards and measure their value and incentive properties. The frequency in the use...

This paper provides the first systematic examination of policies and procedures put in place by corporations to regulate trading in the stock by the firm's own insiders. Over 90 percent of oursample companies have their own policy restricting trading by insiders, and nearly 80 percent have...

We empirically investigate the relationship between corporate governance structure and diversification. Using a sample of 199 firms beginning in 1985 and following these firms through 1994, we examine 1) if governance structure is significantly different between focused and diversified firms; 2)...

We find that CEO compensation is less sensitive to stock-price performance the greater the extent of firm diversification. Our empirical evidence is consistent with a theory of managerial entrenchment as well as with a theory of optimal contracting between shareholders and managers. To...