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Open Access Publications from the University of California

Social Context of the Exercising and Dating of Stock-Options: Three Essays

  • Author(s): Yao, Fiona Kun
  • Advisor(s): Ding, Waverly W.
  • Pozner, Jo-Ellen
  • et al.

The dissertation investigates stock options-related arrangements by individual executives and firms from a sociological point of view. The first study in this dissertation explores the antecedents of stock option exercises by executives in Chinese state-owned firms, behaviors considered deviant from the institutional norms of the Chinese state bureaucracy. This study seeks to answer the following question: When individual beliefs and actions are deeply embedded in their institutional context, as in the case of Chinese executives in overseas-listed firms, who is likely to break with the institutional status quo, and what are their reasons for doing so? Contrary to the existing status-based theory of social deviance, institutional disengagement among Chinese executives often takes place in the middle of an institutional status hierarchy. Characteristics of the institutional environment and the individual biography further interact with individual positions to affect the likelihood that an executive will diverge from the institutional expectation of not exercising stock options. The second study investigates the individual consequences of stock option exercises in Chinese state-owned firms. This study seeks to answer the following questions: When institutional entrepreneurs diverge from the institutional status quo, who is most likely to be punished? Who can bypass the sanction, and for what reasons? The findings suggest that executives were more likely to be punished for divergent behaviors if (a) the executive had low levels of bottom-up power, (b) the prevalence of divergent behaviors among peers was moderate without having reached a threshold that sufficiently legitimized the practice, and (c) the broader audience was concentrated. This study promises to shed new light on the outcomes of institutional entrepreneurship by addressing why some institutional entrepreneurs fail. The third study, explores the spread of stock backdating, an unethical corporate practice about which public information was virtually unavailable until 2005. This "invisible" practice, unlike corporate practices accessible to outsiders, did not diffuse through board interlocks. Rather, stock option backdating spread because of geographic proximity: Firms were more likely to backdate stock options to the extent that other firms located geographically close to them had done so. The effect of geographical proximity was conditional on high levels of local board interlocks, a finding that lends support to the idea of the importance of localized interactions among members of the local business elite. Together these findings suggest that invisible corporate practices follow unique diffusion patterns.

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