Download or read book Essays on Employee Stock Options and Executive Compensation in (non-) Diversified Companies written by Pavlo Tsebro and published by . This book was released on 2013 with total page 125 pages. Available in PDF, EPUB and Kindle. Book excerpt: Essay I. Prior literature suggests three explanations for why companies are granting stock options as a form of compensation to non-executive employees. Broad-based option grants can be used as an incentives tool, a sorting mechanism, and a means of assisting with employee retention. An alternative explanation also exists, namely, that financially constrained firms use broad-based option grants as a form of self-financing. This dissertation contributes to existing literature by examining the financial-constraints hypothesis in firms' option-granting practices. It is the first study to combine two independent approaches in testing the financial-constraints hypothesis in firm-wide option grants. Using simulated and empirical returns in utility model for a representative individual employee, I investigate whether option-based substitutions for a portion of payment in cash can result in economic savings to firms. Secondly, using empirical data on broad-based option grants and utilizing a financial constraints index and individual variable proxies for constraints, I examine the relationship between option grants and the severity of financial constraints to which the firm is subject. I find that direct financial benefits to the firm from the use of option grants are, in general, possible. However, sorting is more likely primary reason for using broad-based option grants, while self-financing is a positive side effect of sorting. Essay II. Agency problems are generally viewed in the literature as one of the reasons why the diversification discount exists. The adoption of equity-based forms of pay (EBC) in CEOs' compensation is considered one way of mitigating agency problems and thus enhancing the value of the firm. Essay II investigates how the intensity of EBC impacts the valuation of diversified firms in two dimensions of diversification: industrial and geographic. Building on the prior literature, this study takes a multi-dimensional approach by considering the combined effects of EBC levels, degrees of product, and geographic diversification on the valuation of the firm. Based on the results of this study I conclude that a firm's valuation is negatively affected by geographic diversification, but it is positively related to industrial diversification, while firms pursuing dual diversification strategies are valued at a discount. Use of the EBC helps to mitigate agency problems and has a positive effect on the firm's valuation. Finally, as a secondary objective I investigate whether regulatory changes (adoption of the SFAS No. 131, FASB 1997) affect the nature of the reported segment data. I find that new regulations do not materially alter the nature of the reported segment data, at least for the purposes of this study.