Our primary tests focus on whether COMPX *'s coefficient is significantly negative.
Option pricing formulas are nonlinear in the inputs and COMPX is not additive in the number of options granted of vesting period, whereas the instrumental variables specification is linear in the instruments.
EP] in Table 8, Panel A, is substantially smaller than that on COMPX * in Table 4.
If COMPX * is correlated with the total value of options outstanding, omitting the latter from Equation (1) could bias COMPX *'s coefficient (Soffer 2000; Li 2003).
Thus, we permit COMPX *'s coefficient to differ for firms with exercisable options as a fraction of options outstanding above the sample median.
Untabulated findings reveal that COMPX *'s coefficient is negative in all three years (t = -7.
8) Equation (1) does not include in BV an adjustment for COMPX because SFAS No.
Using as instruments firms' option pricing inputs preserves in COMPX * any effects of management discretion.
Including these other independent variables reflects the notion that share price is the variable we are attempting to remove from COMPX.
Untabulated results indicate the coefficient on COMPX * is -24.
17) Because data necessary to compute COMPX for 1995 are not disclosed, we are unable to estimate Equation (2) for 1996.
21) Consistent with this, Table 1, Panel C, indicates COMPX * is significantly positively correlated with LTG (Pearson (Spearman) correlation = 0.