Neighborhood matters: The impact of location on broad based stock option plans

Simi Kedia, Shiva Rajgopal

Research output: Contribution to journalArticlepeer-review

106 Scopus citations

Abstract

We find that fixed effects related to the location of firms' headquarters explain variation in broad based option grants after controlling for industry effects and firm characteristics traditionally known to affect option granting. Location matters because of local labor market conditions and social interaction with neighboring firms. Broad based option grants are higher: (i) when a firm's stock prices co-move more with stock prices of other firms located in that Metropolitan Statistical Area (MSA); (ii) in states that are less likely to enforce non-compete agreements; and (iii) in MSAs where employees prefer options because stocks there experience abnormally high returns.

Original languageEnglish (US)
Pages (from-to)109-127
Number of pages19
JournalJournal of Financial Economics
Volume92
Issue number1
DOIs
StatePublished - Apr 2009

All Science Journal Classification (ASJC) codes

  • Accounting
  • Finance
  • Economics and Econometrics
  • Strategy and Management

Keywords

  • Employee compensation
  • Geography
  • Location
  • Retention
  • Stock options

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