The use of stock options in family-owned and family-led firms. Evidence from the global financial crisis

This paper investigates the aim of stock option plans in family firms, considering the effect of family ownership and leadership in both steady-state conditions and financial distress. Using Italy as a study setting, because of the large number of family businesses, we performed a cluster analysis based on the characteristics of plan design to identify incentive and rent-extractive stock option plans. We assumed that the co-existence of family and non-family managers exposes family firms to underexplored agency problems between family owners and non-family managers, and posited that stock options would help to mitigate these problems. Our logit model revealed that family firms were more likely to grant incentive stock options. Family leadership and the global financial crisis both exerted a significant effect on the aim of stock options. This paper contributes to the existing literature on corporate governance and accounting in family businesses, and also has practical significance for investors, regulators and policy-makers.