Executive Stock Options, Corporate Cash Holdings and M&A Decisions

Huang, Y. L., Chen, Y. R., and Chen, B. S. 2021. Executive Stock Options, Corporate Cash Holdings and M&A Decisions. NTU Management Review, 31 (1): 71-115. doi:10.6226/NTUMR.202104_31(1).0003

Yu-Lin Huang, Department of Finance, National Taichung University of Science and Technology
Yenn-Ru Chen, Department of Finance, National Chengchi University
Bai-Sian Chen, Department of Finance, National Chengchi University


This study examines the effect of corporate cash holdings on the risk-taking activities induced by executive stock options (ESOs). Using mergers and acquisitions (M&As) as the proxy of corporate decisions more associated with idiosyncratic risk taking, we find excess cash holdings stimulate the M&A bidding probability induced by the risk incentive of ESOs (vega). The probability of conducting ESOs-induced M&As in cash-rich firms is 7.58% higher than that in non-cash-rich firms. The positive impact of excess cash on the ESOs-induced M&A decisions is more pronounced in firms with low leverage and those in the old economy. Through analyses of the announcement effect and the oneyear profitability effect, our results show the market considers the ESOs-induced M&A decisions made by cash-rich firms are more associated with precautionary motives rather than agency incentives. However, while cash-rich firms undertaking ESOs-induced M&As have better profitability than those not conducting ESOs-induced M&As, how the market assigns future valuations to cash-rich firms conducting ESOs-induced M&As still depends on the corporate governance environment of these firms. 


executive stock optionscorporate cash holdingsmergers and acquisitions

NTU Management Review No. 1, Sec. 4, Roosevelt Road, Taipei, 10617 Taiwan
3F, Bldg. 1, College of Management, National Taiwan University

TEL: +886-2-33661026  +886-2-33665404 | FAX: +886-2-23635658 | 

E-mail: ntupmcenter@ntu.edu.tw