Do financial constraints affect the CEO stock options remuneration? Evidence from a panel threshold model

Abstract

Purpose

The purpose of this study is to examine the nonlinear relationship between financial constraints and the chief executive officer (CEO) stock options compensation and to analyze whether the impact of financial constraints on the CEO stock options compensation changes at certain level of financial constraints or not.

Design/methodology/approach

This study is based on a sample of 90 French firms for the period extending from 2008 to 2019. To deal with the non-linearity, the authors use a panel threshold method.

Findings

Using different measures of financial constraints [KZ index (Baker et al., 2003), SA index (Hadlock and Pierce, 2010) and FCP index (Schauer et al., 2019)], the results reveal that the impact of the financial constraints (SA index and FCP index) is positive below the threshold value and it becomes negative above.

Research limitations/implications

The non-linearity between financial constraints and CEO stock options shows that the level of financial constraints can be a major determinant of the CEO compensation structure. More specifically, this study sheds light on the key role played by the level of financial constraints and how this latter influence management decisions.

Originality/value

This paper is the first to the best of the authors' knowledge to examine the nonlinear relationship between financial constraints and the CEO stock options compensation using a panel threshold model.

Citation

Zaiane, S., Dabbou, H. and Gallali, M.I. (2023), "Do financial constraints affect the CEO stock options remuneration? Evidence from a panel threshold model", EuroMed Journal of Business, Vol. ahead-of-print No. ahead-of-print. https://doi.org/10.1108/EMJB-10-2022-0193