The Comparison of Stock Contract and Options Contract

This paper compared stock contract and option contract on the basis of principal-agent theory, and discussed the advantages of the two. Despite of the common view that stock contract is a particular option contract without exercise price, we considered two circumstances of stock contract: free given and partial purchase. And stock purchase price is used in our analysis. The calculation results showed that: when the cash part of managers´ income is of free variation, stock contract is better than option contract; when the cash part is fixed, superiority of stock option is based on its purchase price. Unit costs of stock contract and option contract are almost the same if stock purchase price equals option exercise price, and the two contracts can be replaced with each other. Besides, when purchase price and exercise price is near stock market price, unit incentive cost of stock contract and option contract is the lowest, which means that the two contracts.