2. Institutional Characteristics and Effects of a Stock Option

A stock option is defined as a corporation’s “own share option given as remuneration to their working staff.” In other words, it is a call option that identifies the share of their own corporations as an original asset under the present corporation law. The use of a stock option used to be prohibited in Japan. In May 1997, a stock option system was introduced for the first time, and, in November 2001, the Commercial Law was revised and a call option system was introduced. The number of companies that have introduced a stock option has increased steadily from the beginning of the system in the 1997 fiscal year. It reached a peak of 798 companies in the 2008 fiscal year. After that, affected by the costs-and-expenses treatment of the stock option, the worldwide economic recession, and a fall in stock prices accompanying the Lehman shock, the number of companies that have introduced a stock option declined to 721 companies in the 2010 fiscal year and 707 companies in the 2012 fiscal year. Studies on stock options in Japanese firms multiplied after the introduction of the system in 1997. Many studies focus upon what kinds of corporation introduced the stock option. Some studies examine the consequences or influences of the introduction of the stock option. For example, Nagaoka (J Bus 78(6):2289–2315, 2005) shows that firms that are younger, that show more volatile stock prices, that belong to the high-intensity R&D sector, and that have higher growth potential tend to have a higher propensity to introduce a stock option. Kato et al. (J Finan Econ 78(2):435–461, 2005) compare between stock option-adopting firms and non-adoption firms over the three years before and after the adoption of the stock option and show that management ownership becomes higher for the adoption firms, that there are no significant differences in dividends or stock price volatility between the adopting and non-adopting firms, and that the profitability of the adopting firms measured by return on assets is higher.