Abstract
This study focuses on the long-term investment performance of employee stock options (ESOs) issued by listed companies in Taiwan for their respective employee compensation packages. The results indicate that the detrimental effect on investment performance of the companies manifest three months after the issuance of the ESOs. In addition, companies that own low free cash flow (FCF) have better long-term performance after issuing ESOs. This result supports the FCF theory of Jensen (1986).
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