Employee stock options in compensation agreements: A financing explanation

Holland, Larry C.; Elder, Erick M.

doi:10.1016/j.jcorpfin.2005.06.002

Cited by 12 publications

(9 citation statements)

References 13 publications

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“…More specific breakdowns are available upon request. Holland and Elder (2006) find that rank-and-file employees exhibit an α J close to 10% but concur that subjective value is in α J because of risk aversion and under-diversification. 8 Compustat data shows that option life, volatility, and dividend yield are 6.51 years, 43.1%, and 1.47%, respectively.…”

Section: Agency Effectsmentioning

confidence: 55%

ESO compensation: The roles of default risk, employee sentiment, and insider information

Chang

Fuh

Hsu

2008

Journal of Corporate Finance

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Section: Agency Effectsmentioning

confidence: 55%

ESO compensation: The roles of default risk, employee sentiment, and insider information

Chang

Fuh

Hsu

2008

Journal of Corporate Finance

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“…12 12 Holland and Elder (2006) find that rank and file employees exhibit an α close to 10% and concur that subjective value is decreasing in α due to risk aversion and under diversification. …”

mentioning

confidence: 67%

“…For some issues for which there is no time stamp, we assume an issuance date of July 1 since this would be the middle of the fiscal year for the vast majority of firms.12 Holland and Elder (2006) find that rank and file employees exhibit an α close to 10% and concur that subjective value is decreasing in α due to risk aversion and under diversification.…”

mentioning

confidence: 99%

The Pricing of Risk and Sentiment: A Study of Executive Stock Options

Chang¹,

Chen²,

Fuh

2012

Financial Management

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Option pricing models accounting for illiquidity generally imply the options are valued at a discount to the Black‐Scholes value. Our model considers the role of sentiment, which offsets illiquidity. Using executive stock options and compensation data from 1992 to 2004 for S&P 1500 firms, we find that executives value employee stock options (ESOs) at a 48% premium to the Black‐Scholes value. These premia are explained by a sentiment level of 12% in risk‐adjusted, annualized return, suggesting a high level of executive overconfidence. Subjective value relates negatively to illiquidity and idiosyncratic risk, and positively to sentiment in all specifications, consistent with the offsetting roles of sentiment and risk aversion.

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“…Core, Guay (2001) is among the earliest studies that investigates relationship between financing constraints and company-wide option grants. Their work was followed by Kedia, Mozumdar (2002), Holland, Elder (2006), and Oyer, Schaefer (2003, 2005, who all address the financing hypothesis behind BBSO grants as a stand-alone research question.…”

Section: Literature Reviewmentioning

confidence: 99%

Employee Stock Options: Financing Constraints Explanation

Tsebro

2016

JFI

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Prior literature suggests three explanations for granting stock options as a form of compensation to non-executive employees. Broad-based option grants can be used as an incentives tool, a sorting mechanism, and a means of assisting with employee retention. An alternative explanation is that financially constrained firms use broad-based option grants as a form of self-financing. Using empirical data on broad-based option grants, a financial constraints index and individual variable proxies for financial constraints, we examine the relationship between option grants and the severity of financial constraints to which the firm is subject. We find that direct financial benefits to the firm from the use of option grants are possible. However, sorting is more likely reason for using broad-based option grants, while self-financing is a positive side effect of sorting.

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Employee stock options in compensation agreements: A financing explanation

Cited by 12 publications

References 13 publications

ESO compensation: The roles of default risk, employee sentiment, and insider information

ESO compensation: The roles of default risk, employee sentiment, and insider information

The Pricing of Risk and Sentiment: A Study of Executive Stock Options

Employee Stock Options: Financing Constraints Explanation

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