The Role of Equity Compensation in Reducing Inefficient Investment in Labour

2018-12-03T22:34:38Z (GMT) by MOHAMMED AMINU SUALIHU
This thesis examines whether equity compensation incentivises executives to make efficient labour investment decisions. Specifically, it examines whether the components of equity compensation — stock options and restricted stock — affect over- and under-investment in labour. Based on a sample of 12118 firm-year observations from 1992 to 2014, it is found that stock options exacerbate over-investment and mitigate under-investment in labour. In contrast, restricted stock is found to mitigate both over- and under-investment in labour. Overall, the findings demonstrate that stock options and restricted stock matter in executives’ labour investment decisions.