External competition and internal governance on stock options plans: Evidence from Taiwan

This study is to investigate the influences that external product market competition and internal corporate governance mechanisms have on managerial incentives. In this study, the values of employee stock options are used to measure managerial incentives. The findings show that excessively large boards, CEO duality, cross-holding, and a pyramidal structure achieve a positive correlation with managerial incentives. In addition, the presence of independent directors also increases the stock options values of managers. The independent directors possible overlook governance functions to increase managerial incentives, and they focus more on equity incentives. Furthermore, the relationship between product market competition and managerial incentives is nonlinear, which implies that in less competitive markets, an increase in competition stimulates firms to increase their managerial incentives. By contrast, in highly competitive markets, an increase in competition stimulates firms to decrease their managerial incentives.