The impact of executive share
Date
2011-04-15
Authors
Jacobs, Fredell
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Abstract
Executive share options are often cited as performance incentives that align
management and shareholder interest. This research report examines the impact of
executive share options on company performance and test if there is a significant
difference in performance between companies with different levels of share options.
The problem is defined in two parts, one looking at company performance and the
other management decision making. It employ share price cumulative annual
returns, average Tobin’s Q and average return on assets over five years to define
company performance. While the influence of management decision making is
defined through the average dividend yield and debt/equity ratio over five years.
This research report ignored the variability and risk component associated with
share options and the performance and management decision making variables. It
also excludes any attempt to comment on the effectiveness of share options as part
of executive compensation. A regression analysis and two T-tests were employed
on a sample of 203 JSE listed companies. Reliable data was sourced directly from
two financial market data specialist. With the exception of ROA there was a
significant statistical relationship between share options and the respective
variables. However, these findings cannot be accepted as conclusive due to the
violation of many normality assumptions. There was no evidence of any significant
statistical difference between companies with higher than the mean or lower than
the mean share option ratio, with the exception of Tobin’s Q. In contrast to this a
secondary T-test revealed evidence of a significant statistical difference between
the mean return on assets and mean dividend yield for companies with and
companies without share options. While there was no evidence of any significant
statistical difference between the mean cumulative annual average returns, Tobin’s
Q and debt/equity ratio of companies with share options and those without. This
leads one to conclude that share options do not have a significant impact on
company performance
Description
MBA - WBS
Keywords
Share options, Company performance