Going short-term or long-term? CEO stock options and temporal orientation in the presence of slack

Abstract

Research summary: We draw on behavioral agency theory to explain how decision heuristics associated with CEO stock options interact with firm slack to shape the CEO's preference for short- or long-term strategies (temporal orientation). Our findings suggest CEO current option wealth substitutes for the influence of slack resources in encouraging a long-term orientation, while prospective option wealth enhances the positive effect of slack on temporal orientation. Our theory offers explanations for non-findings in previous analysis of the relationship between CEO equity based pay and temporal orientation and provides the insights that CEO incentives created by stock options (1) enhance the ef..