One of the keys to combating identity theft is having effective legislation for its prevention, detection and mitigation. Statutory measures alone are not, of course, a complete solution: also important are enforcement, sound policies and effective public and private sector practices. Comprehensive education and awareness programs, effective reporting mechanisms and prudent choices on the part of individuals are also part of the solution. However, a strong legal framework can also provide a foundation for tackling the problems associated with identity theft.
During the last decade, Canada, the U.S. and other countries have passed legislation that directly and indirectly pertain to identity theft. The U.S. has been especially proactive on this front. With time, legislative activity will increase as governments react to the increasingly pervasive and sophisticated nature of identity theft and respond to growing public awareness and demands for action.
In this paper, we assess whether the firm‘s Black Scholes‘ value of stock options granted to the top five executives is associated with benefits in the form of increased future operating earnings. Although stock options comprise the fastest growing component of top management compensation, there is no consensus on the relation between employee stock option compensation and future firm performance. This lack of consensus can be distilled into two opposing perspectives.
Few investments offer as much liquidity as publicly traded stock. Almost by definition, liquidity requires that a firm’s shares be held by a large number of owners, many of whom are only temporary. It is often argued that managers will inevitably fail to serve the interests of such shareholders; originally by Smith (1776) and Berle and Means (1932) and more recently in debates over the virtues of “relationship investing” in countries such as Germany and Japan (Coffee, 1991; Roe, 1994; Bhide, 1993). Admati, Pfleiderer and Zechner (1994) show formally how liquid markets undermine governance by providing investors with the option of easy exit. Other theoretical models, however, come to the opposite conclusion; liquidity can reduce agency problems. Building on Hayek’s (1945) insight that market prices provide information as well as terms of trade and the Kyle (1985) model of ‘informed’ trading, Holmstrom and Tirole (1993) show how liquidity can improve incentive contracts by increasing the information content of stock prices. A more liquid market allows informed observers of executive ability to drive the stock price closer to fundamentals by hiding their trades more effectively in the larger order-flow provided by uninformed noise traders.
The more effective are these trading “external monitors” in incorporating managerial ability and actions in the stock price, the greater the incentive the board has to tie executive performance to the now more informative stock price. Generally, executive stock options are the tying device most closely related to stock appreciation rights modeled by Holmstrom and Tirole. A complementary argument appears in Kyle and Vila (1994), Kahn and Winton (1998) and Maug (1998) who demonstrate that liquidity can reduce the costs that an investor bears in taking a large position in order to influence or replace managers, as originally suggested by Manne (1965).
