The incentives of Australian companies to utilize executive stock option plans

Abstract

This study investigates the firm specific characteristics which provide ex ante incentives to Australian companies to utilize an executive stock option (ESO) plan. We hypothesize that the remuneration of the Chief Executive Officer, the firm’s investment opportunity set, the level of leverage and the degree of international diversification of the firm are related to the firm’s utilization of an ESO plan. Using a sample of 378 firms drawn from the largest 500 firms in Australia, we find that the results support our hypotheses, with the exception of the level of firm leverage.