Abstract

The wave of globalisation and its impact on business excellence is real. The importance of motivational compensation packages at achieving improved corporate performance/business excellence cannot be overemphasised. Executive stock options have been widely used to remunerate top executives of companies in this regard. The purposes of this study are to summarise and review the compensation literature on executive stock options plan relating it to firm valuation, with special emphasis on accounting numbers; synthesise and develop a framework that explains existing relationships in the extant literature connecting executive stock options and firm value and suggesting future research directions in this area of research. This study examined these in the context of compensation theories, corporate governance, earnings management as well as potential for corporate volatility and corporate failure.

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