| The objectives of this research is to measure the impact of options on the size of moral hazard when the agent seeks for outside equity. The model used to compute moral hazard are the empirical studies of Lazear and Rosen (1984), Myers (2000), and Siller and Otalora (2007) models. Those models consider the manager contribution as human capital and not only as labor. Moral hazard is given by the risk aversion of managers and the greater value of options, the greater the moral hazard. If manager is risk neutral or if manager effort does not impact the options value, the moral hazard disappears. When the manager gives contribution to intangible assets of the firm, the moral hazard depends on the value of option and the percentage of free cash flows that he will be received. The greater the option value the greater dividends, and the greater moral hazard. The result of this research differs from Myers (2000), who argues that ownership share does not affect firm value, but consistent with Jensen and Meckling (1976), Bitler and Moscowitz (2005), and Siller and Otalora (2007) which argued that options incentives may induce manager to raise firm value. |