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Going Short-Term or Long-Term? CEO Stock Options and Temporal Orientation in the Presence of Slack
(2016)
  • Geoffrey P Martin, Dr, Melbourne Business School
  • Robert M Wiseman, Dr, Michigan State University
  • Luis R Gomez-Mejia, Dr, Notre Dame College
Abstract

We draw on behavioral agency theory to explain how decision heuristics associated with CEO stock options interact with firm slack to shape the CEO’s preference for short or long-term strategies (temporal orientation). Our findings suggest CEO current option wealth substitutes for the influence of slack resources in encouraging a long-term orientation, while prospective option wealth enhances the positive effect of slack on temporal orientation. Our theory offers explanations for non-findings in previous analysis of the relationship between CEO equity based pay and temporal orientation and provides the insights that CEO incentives created by stock options: (1) enhance the effect of available slack upon temporal orientation; and (2) can both incentivize and de-incentivize destructive short-termism, depending upon the values of current and prospective option wealth.

Publication Date
2016
Citation Information
Geoffrey P Martin, Robert M Wiseman and Luis R Gomez-Mejia. "Going Short-Term or Long-Term? CEO Stock Options and Temporal Orientation in the Presence of Slack" (2016)
Available at: http://works.bepress.com/geoffrey_martin/7/