Are Executive Stock Options Associated with Future Earnings?
Michelle Hanlon, Shivaram Rajgopal and Terry Shevlin
Working Paper, University of Washington, 2002

The study examines the relationship between executive stock option grants and future earnings, and finds that U.S.$2.85 of future operating income is associated with a dollar value of stock option grant. To better understand the determinants of this positive payoff, the authors decompose the grant value into three distinct components – economic determinants of option grants, governance quality and a residual grant value – and find that only the economic determinants drove the payoffs.


The Structure and Performance Consequences of Equity Grants to Employees of New Economy Firms
Christopher D. Ittner, Richard A. Lambert and David F. Larcker
Journal of Accounting and Economics 34, 89-127, 2003

Christopher Ittner, Richard Lambert and David Larcker of the Wharton School focus on new economy firms and examine whether sub-optimal granting of stock options led to firm underperformance. For a sample of 90 firms, the authors find that firms which have granted fewer options than what theory predicted suffered poorer performance.