Adoption Of Stock Option Plans Research Articles

A Review of Employee Stock Option Plans: Panacea or Pandora’s Box for Firm Performance

Employee stock option Plans (ESOPs) have gathered enormous attention in recent decades and have become the most controversial component of the compensation package. Organizations around the globe have been using ESOPs to compensate their employees at managerial and non-managerial levels. While traditionally the stock options were reserved for top management employees, lately there has been strong growth of broad-based plans primarily to increase firm value. Recent literature examining the effects of broad-based stock options are not limited to executive but available for all employees (Core and Guay, 2001; Oyer and Schaefer, 2005; Hallock and Olson, 2010, etc.). However, the shareholders have become increasingly apprehensive about the size and proliferation of adoption of stock option plans. Accordingly, they have been an issue of debate in both academic research and practice circles. The present paper outlines the theoretical foundations behind the use of ESOPs in the compensation mix and strives to address the controversy of whether or not stock options adoptions result in enhancement in firm value. Though the evidence is mixed on the implications of ESOPs, however, there exists robust support for a positive interrelationship between the adoption of these plans and firm performance for large sized firms.

A Review of Employee Stock Option Plans: Panacea or Pandora’s Box for Firm Performance

Employee stock option Plans (ESOPs) have gathered enormous attention in recent decades and have become the most controversial component of the compensation package. Organizations around the globe have been using ESOPs to compensate their employees at managerial and non-managerial levels. While traditionally the stock options were reserved for top management employees, lately there has been strong growth of broad-based plans primarily to increase firm value. Recent literature examining the effects of broad-based stock options are not limited to executive but available for all employees (Core and Guay, 2001; Oyer and Schaefer, 2005; Hallock and Olson, 2010, etc.). However, the shareholders have become increasingly apprehensive about the size and proliferation of adoption of stock option plans. Accordingly, they have been an issue of debate in both academic research and practice circles. The present paper outlines the theoretical foundations behind the use of ESOPs in the compensation mix and strives to address the controversy of whether or not stock options adoptions result in enhancement in firm value. Though the evidence is mixed on the implications of ESOPs, however, there exists robust support for a positive interrelationship between the adoption of these plans and firm performance for large sized firms.

The adoption of stock option plans and their effects on firm performance during Japan’s period of corporate governance reform

This paper empirically investigates the adoption of stock option plans and their effects on firm performance in Japan. Using the sample of the period of corporate governance reform in the 2000s, we find that the adoption of stock option plans was more likely at firms in an industry where many firms had already introduced stock option plans. The result indicates a type of herding behavior among Japanese firms. We further find that firms rushed to grant stock options just before the adoption of the new accounting standard (ASBJ Statement No. 8). Unique to Japan, this standard requires stock option expensing only for newly granted options. We also find that operating performance decreased, but that payout and liquidity ratios remained almost constant after the adoption of stock option plans. Overall, the results do not support the view, at least in the Japanese context, that stock options can function as a primary incentive for improving firm performance.

Fatores determinantes para adoção de planos de opções de ações em companhias abertas brasileiras

O objetivo do estudo foi identificar os fatores determinantes para adoção de planos de opções de ações em companhias abertas brasileiras. Para tal, realizou-se pesquisa descritiva, conduzida por meio de análise documental e abordagem quantitativa, com emprego de regressão logística. A amostra foi composta por 158 companhias, com dados referentes ao período de 2009 a 2012. Os resultados evidenciaram um crescimento na quantidade de empresas que possuíam planos de opções de ações no período. Dentre os fatores tamanho da empresa, restrição de liquidez, concentração acionária, problema de horizonte, participação acionária do CEO, dualidade do cargo de CEO e presidente do conselho de administração, descritos na literatura como influenciadores para a utilização de planos de opções de ações, três se confirmaram na amostra analisada. Os fatores “liquidez corrente” no período de 2010 a 2012, “problema de horizonte” no período de 2009 a 2012 e “participação acionária” no ano de 2012. Estes achados fornecem mais evidências de relações positivas no cenário brasileiro.

Do stock option plans affect the firm’s performance? An empirical analysis on the Italian context

This study investigates the impact of stock option plans, defined as share-based incentive contracts provided by companies to their employees, on the value relevance of accounting information. The purpose of this study is to analyse the extent to which the value relevance of accounting information is affected by the adoption of stock option plans. Using panel data, the empirical analysis shows that the value relevance of accounting information is affected by the adoption of stock option plans. They are seen by the market as a “cost” and not as an opportunity or an attempt to align different interests. In addition, the research results show that the market performance does not seem affected by the design of the stock option plans. However, the firm’s market performance appears to be more related to the structure of the stock option plans in companies with a higher market capitalization. Thus further research is needed to deeper investigate the impact of the design of the stock option plans and the effect of the endogenous characters

Stock Option Awards: Effects on Firm Performance and Risk-Taking after Japan’s Corporate Governance Reforms

We empirically investigate the adoption of stock option plans in Japan after the corporate governance reforms of the early 2000s. We examine the determinants of stock option grants, especially focusing on the effects of herding behavior among Japanese firms and the change of accounting treatment of stock option grants. We also investigate the effects of stock option awards on firm performance, using propensity score matching. Then, following Hayes et al. (2012) identification strategy, we provide new evidence on causal relation between managerial incentives and risk-taking. We find that the adoption of stock option plans is more likely in firms that compete with the other firms that have extensively adopted stock option plans in the same industry, indicating that there is a kind of ‘spillover’ effect among those firms. We find that firms that introduce stock option plans generally face liquidity constraint and their option usage declines significantly after the adoption of accounting standards. We also find some evidences that do not support the view that providing incentives for risk-taking is a primary purpose for the use of stock options. This paper provides some new evidence of the adverse implications of stock option plans in the scheme of equity-based compensation.

Employee stock option plans and stock market reaction: evidence from Finland

This paper examines whether the adoption of stock option plans results in changes in shareholders’ wealth, and whether the stock market reactions to ESOP announcements could be explained by the target group of ESOP and the dilution effect. Short-horizon test methods are applied for this purpose. The sample consists of ESOP announcements of Finnish publicly quoted companies on the Helsinki Stock Exchange during the time period 1988–1998. The event study results show a slightly positive market reaction to announcements of ESOPs targeted to management and a negative market reaction in the case of ESOPs targeted to all employees. The results of regression analysis show that the ESOPs with limited dilution convey positive information to the stock market and the dilution effect has a negative impact on stock returns, especially in the case of ESOPs targeted to all employees.

Venture Capital and the Professionalization of Start‐Up Firms: Empirical Evidence

ABSTRACTThis paper examines the impact venture capital can have on the development of new firms. Using a hand‐collected data set on Silicon Valley start‐ups, we find that venture capital is related to a variety of professionalization measures, such as human resource policies, the adoption of stock option plans, and the hiring of a marketing VP. Venture‐capital‐backed companies are also more likely and faster to replace the founder with an outside CEO, both in situations that appear adversarial and those mutually agreed to. The evidence suggests that venture capitalists play roles over and beyond those of traditional financial intermediaries.