Market valuation and employee stock options

• 成果类型: Article
• 署名作者: Ge Zhang
• 署名单位: University of Louisiana System; University of New Orleans
• 刊物名称: MANAGEMENT SCIENCE
• ISSN/ISSBN: 0025-1909
• DOI: 10.1287/mnsc.1060.0539
• 发表日期: 2006
• 页码: 1377-1393
• 关键词: Employee stock options; COMPENSATION; market valuation

摘要

This paper investigates a market-valuation-based hypothesis for employee stock options (ESOs). Given that stock prices do not track fundamental values perfectly, I show that ESOs can be used to sell overvalued stocks and to increase long-term shareholder value: The key cross-sectional prediction of the valuation rationale is that the conditional probability of granting options to employees and the amount of options granted to them are positively correlated with market valuation and volatility. Moreover, for extremely overvalued firms, the correlation between option grant and market valuation is weaker. Firms that use ESOs can save their regular employee compensation costs. I find strong empirical evidence supporting these predictions.