The Propensity to Split and CEO Compensation. Issue 1 (16th June 2017)

• Record Type: Journal Article
• Authors: Devos, Erik; Elliott, William B.; Warr, Richard S.
• Is Part Of: Financial management. Volume 47:Issue 1(2018:Spring)
• Page Start: 105
• Page End: 129
• Publication Date: 2017-06-16
• Subjects: Corporations -- Finance -- Periodicals; 658.1505
• DOI: 10.1111/fima.12179
• Languages: English
• ISSNs: 0046-3892

Abstract

Abstract: We analyze the relation between the delta and vega of a chief executive officer's (CEO) compensation and the propensity of the firm to engage in a split. Controlling for other well‐known factors, we find that CEOs with compensation that has higher levels of delta are more likely to split their shares. Furthermore, the choice of split factor is inversely related to delta. Our results are economically significant: for the average (median) firm in our sample, a stock split results in a CEO wealth gain of $4.9 million ($84, 000).