National Culture and the Timing of Employee Stock Option Exercise

Abstract

We explore the impact of cultural norms on employee stock option (ESO) exercise behavior using proprietary data from a multinational firm. We find that employees in countries where there is a greater cultural norm to avoid uncertainty exercise their stock options earlier. Our results suggest that both an employee’s valuation of option-based pay and a firm’s financial reporting cost to compensating employees with options should vary predictably across countries. Our findings provide insight into the use and effectiveness of option-based compensation for international employees.