Why CEO option compensation can be a bad option for shareholders: Evidence from major customer relationships

A-Tier
Journal: Journal of Financial Economics
Year: 2021
Volume: 142
Issue: 1
Pages: 453-481

Authors (3)

Liu, Claire (not in RePEc) Masulis, Ronald W. (UNSW Sydney) Stanfield, Jared (not in RePEc)

Score contribution per author:

1.341 = (α=2.01 / 3 authors) × 2.0x A-tier

α: calibrated so average coauthorship-adjusted count equals average raw count

Abstract

We study how the existence of important production contracts affects the choice of chief executive officer (CEO) compensation contracts. We hypothesize that having major customers raises the costs associated with CEO risk-taking incentives and leads to lower option-based compensation. Using industry-level import tariff reductions as exogenous shocks to customer relationships, we find that firms with major customers subsequently reduce CEO option-based compensation significantly. We also show that continued high option compensation following tariff cuts is associated with significant declines in these relationships and supplier firm performance. Our study provides new insights into how important stakeholders shape executive compensation decisions.

Technical Details

RePEc Handle
repec:eee:jfinec:v:142:y:2021:i:1:p:453-481
Journal Field
Finance
Author Count
3
Added to Database
2026-01-25