Stock and Option Grants with Performance-based Vesting Provisions
- 31 August 2010
- journal article
- Published by Oxford University Press (OUP) in The Review of Financial Studies
- Vol. 23 (10), 3849-3888
- https://doi.org/10.1093/rfs/hhq060
Abstract
We assemble a sample of 983 equity-based awards that include either an accelerated- or a contingent-vesting provision tied to firm performance and explore the frequency, contractual nature, usage, and implications of such awards. We find that performance-vesting (p-v) provisions specify meaningful performance hurdles and provide significant incentives for executives. The propensity to use p-v provisions is positively related to the arrival of a new CEO and the proportion of outsiders on the board of directors and negatively related to prior stock performance. Performance-vesting firms have significantly better subsequent operating performance than control firms. Abnormal accounting performance does not arise from earnings management or discernible differences in financial or investment policy.This publication has 34 references indexed in Scilit:
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