Stock Options and Internal Capital Allocation Decisions

  • Li Yong Mercy College School of Business
Keywords: Stock options, Internal capital allocation

Abstract

This paper examines how executive stock options affect firms’ internal capital allocation decisions.  I find evidence at both the segment level and the firm level that conglomerate CEOs respond to option incentives by tilting toward high-risk segments when allocating capital expenditures across segments, which is consistent with the risk-seeking incentives associated with the convex payoff structure of options.  The results also suggest that corporate governance, as reflected in an index of anti-takeover amendments, has a substantial impact on firms’ investment choices. 

Author Biography

Li Yong, Mercy College School of Business

Li Yong received her Ph.D. in finance from the University of Texas at Austin and has taught at the University of Texas at Arlington.  Her research interests include: closed-end funds, mutual funds, and the internal capital market.  She has published in the Journal of Finance and the Journal of Management and Innovation and presented her work at major national conferences including the American Finance Association and the Financial Management Association meetings.  She joined Mercy College in 2012 and has been teaching economics and finance courses at the School of Business.

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Published
2016-10-14
Section
Articles