Employee stock options

Huddart, Steven

doi:10.1016/0165-4101(94)00363-7

Cited by 280 publications

(170 citation statements)

References 9 publications

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“…when other assumptions of the model are not satisfied (the Black-Scholes approach to pricing options is less reliable in the case of ESOs because those securities are not traded). While we know that using the conventional Black-Scholes approach over-estimates the value of ESOs because these securities are not traded (Huddart, 1994), there is no reliable way of quantifying the appropriate discount.…”

Section: Balance Sheet Measurement Rulesmentioning

confidence: 99%

Implications for GAAP from an analysis of positive research in accounting

Kothari¹,

Ramanna

Skinner

2010

Journal of Accounting and Economics

583

356

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Based on extant literature, we review the positive theory of GAAP. The theory predicts that GAAP's principal focus is on control (performance measurement and stewardship) and that verifiability and conservatism are critical features of a GAAP shaped by market forces. We recognize the advantage of using fair values in circumstances where these are based on observable prices in liquid secondary markets, but caution against expanding fair values to financial reporting more generally. We conclude that rather than converging U.S. GAAP with IFRS, competition between the FASB and the IASB would allow GAAP to better respond to market forces.

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Section: Balance Sheet Measurement Rulesmentioning

confidence: 99%

Implications for GAAP from an analysis of positive research in accounting

Kothari¹,

Ramanna

Skinner

2010

Journal of Accounting and Economics

583

356

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“…However, ESO holders are in general undiversified and their exercise behaviour is largely driven by risk-aversion and liquidity needs (see e.g. Huddart, 1994). In the present paper, we adopt a reduced-form approach for modelling departure and early exercise following Cuny and Jorion (1995) and Carr and Linetsky (2000).…”

Section: Departure and Early Exercisementioning

confidence: 99%

Valuing executive stock options: performance hurdles, early exercise and stochastic volatility

Brown

Szimayer

2008

Accounting & Finance

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Accounting standards require companies to assess the fair value of any stock options granted to executives and employees. We develop a model for accurately valuing executive and employee stock options, focusing on performance hurdles, early exercise and uncertain volatility. We apply the model in two case studies and show that properly computed fair values can be significantly lower than traditional Black-Scholes values. We then explore the implications for pay-forperformance sensitivity and the design of effective share-based incentive schemes. We find that performance hurdles can require a much greater fraction of total compensation to be a fixed salary, if pre-existing incentive levels are to be maintained.

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“…On the other hand, the CEO may value options more highly if he or she anticipates a strong bull market or strong firm performance, has sufficient other cash inflows, or wishes to defer compensation for personal tax reasons. Yermack (1995), Lambert et al (1991), andHuddart (1994) address some of the theoretical issues regarding the extent to which option pricing models overstate the cash equivalent value for executives who are granted such options. Executive-specific incentives, either individually or in combination, are not examined in this study due to data limitations.…”

Section: The Ceo's Incentivesmentioning

confidence: 99%

The Impact of Financial and Tax Reporting Incentives on Option Grants to Canadian CEOs

KLASSEN¹,

Waterloo²,

MAWANI³

et al. 2000

Contemporary Accounting Research

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This study explores the effects of financial and tax reporting incentives on options granted to chief executive officers in Canada. Extant studies with a similar objective (Yermack 1995;Matsunaga 1995) explore predominantly nonqualified U.S. option grants that are deductible to the extent that the options are in the money at the time of exercise. In contrast, Canadian firms do not get a tax deduction for their stock option grants at any time. In both countries, no expense is recorded for financial reporting purposes. As a result, the financial reporting and tax reporting trade-off is more pronounced in the Canadian setting of this study compared with the U.S. setting.We measure option granting behavior as the ratio of the Black-Scholes value of stock option grants to the sum of cash compensation and the value of stock option grants. Using a sample of 806 firm-year observations during the period 1993-95, we find that observed option grants are significantly correlated with proxies for short-run financial reporting incentives. We also find evidence that option granting behavior is correlated with proxies for tax incentives. Keywords Stock options; Taxation; Financial reporting; Hypothesis testing CondenséLe recours aux options d'achat d'actions dans le régime de rémunération des cadres peut augmenter le bénéfice déclaré dans le contexte de l'information financière puisque la charge au titre des salaires afférente aux options dans l'état des résultats est habituellement nulle. Il se peut donc que les sociétés plus sensibles au bénéfice déclaré (c'est-à-dire celles pour qui les coûts de l'information financière sont plus élevés) soient davantage susceptibles d'octroyer à leurs cadres des options d'achat d'actions, de manière à éviter la constatation Plus précisément, le contexte canadien est fort différent du contexte des États-Unis sur lequel se sont penchés Yermack (1995) et Matsunaga (1995. Ces derniers testent dans leurs études les données des États-Unis relatives à l'octroi d'options majoritairement sans restriction dont l'avantage connexe peut être déduit par la société au moment de la levée. Les auteurs de la présente étude, au contraire, examinent les options octroyées au Canada pour lesquelles aucune déduction fiscale n'est permise au moment de la levée. Le recours aux options exige donc des sociétés canadiennes qu'elles parviennent à un compromis entre les avantages de l'information financière et les coûts fiscaux, tandis que le recours aux options sans restriction aux États-Unis offre le meilleur des deux mondes (la déductibilité fiscale et aucune charge dans l'état des résultats). En conséquence, l'élément fiscal dissuasif que comporte l'octroi d'options devrait être plus accentué dans la présente étude que dans celle de Yermack (1995) ou de Matsunaga (1995). Le principal apport des auteurs est ici de documenter les conséquences de l'absence de déduction fiscale sur l'octroi par les sociétés d'options d'achat d'actions aux cadres. Les auteurs recueillent également d'autres faits démontrant l'inci...

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Employee stock options

Cited by 280 publications

References 9 publications

Implications for GAAP from an analysis of positive research in accounting

Implications for GAAP from an analysis of positive research in accounting

Valuing executive stock options: performance hurdles, early exercise and stochastic volatility

The Impact of Financial and Tax Reporting Incentives on Option Grants to Canadian CEOs

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