Board Interlocks and the Adoption of Stock Option Pay

• Main Authors: Yoshikawa, Toru, SHIM, Jung Wook, Tuschke, Anja C.
• Format: text
• Language: English
• Published: Institutional Knowledge at Singapore Management University 2013
• Subjects: Board interlock; ownership; stock options; Corporate Finance; Strategic Management Policy
• Online Access: https://ink.library.smu.edu.sg/lkcsb_research/3580; https://doi.org/10.5465/AMBPP.2013.11802abstract
• Institution: Singapore Management University

This study investigates the effects of different types of director interlocks (sent and received ties) on the adoption of stock option pay among Japanese firms. Our findings show that sent ties are significantly related to the adoption of stock option pay whereas received ties are not, thus confirming our argument that managerial power and motivation of those who transfer information matter. The effects of sent ties are further strengthened by large foreign ownership and high levels of industry diffusion suggesting their complementary effects on managerial power. We also find that family ownership positively affects the impact of ties on the adoption of stock option pay. These findings suggest that information is not sufficient for the new practice to be adopted but that managerial and family power is important in the adoption decision.