Employee Stock Option Plans Research Articles

DAMPAK STRUKTUR MODAL PADA SENSITIVITAS PENERAPAN KOMPENSASI OPSI SAHAM KARYAWAN TERHADAP KINERJA

This study aims to test whether the management that receive compensation in the form of stock options having an positive impact on company performance. This study considers the external performance measurement by identifying Cumulative Abnormal Return (CAR). In addition, this study aims to test whether the company's capital structure affects the sensitivity level of employee stock option compensation and firm performance. Capital structure is measured with debt to equity ratio. The result indicates that the proportion of Employee Stock Option Plan (ESOP) influence company performance in accordance with the predictions. This shows that the more stock options offered to employees then came a sense of belonging which resulted in more motivated managers to improve company performance. Furthermore, the higher the market performance of companies that can be achieved, the higher the profit (gain) will be obtained by the recipient of stock options. In addition, this study also shows that the impact of stock option grants at the company's performance declined with the greater capital structure of liability. This shows that the capital structure of liabilities will lower the sensitivity level of employee stock option compensation and firm performance. The higher the company's liabilities would reduce the rights of the owner of the dividends each period in accordance with the ownership of shares held since the company must take into account the interest costs to be paid to the creditor.

Employee Stock Option Plan and Firm Performance: A Quantile Regression Approach

The study attempts to investigate the effect of employee stock option plans (ESOPs) on the financial performance of Indian non-finance companies. The study employed the quantile regression (QR) model to examine the effect of ESOP on the financial performance of sample companies. The empirical findings suggest that the effect of equity-based payment is positive at the higher performance levels. This indicates that the firms adopted stock-based compensation schemes in their early stage of growth may cause a declining financial performance in compared to the matured firms. Moreover, the findings indicate that the industry plays a significant role in deciding the equity-based compensation and depict a positive impact of ESOP on firm performance. The employee based compensation is also found to be positively associated with the company performance, while the performance is measured through market measures. The findings may be attributed due to the direct linkage of equity-based option schemes to the market performance measures.

The effects of employee stock option plans on operating performance in Chinese firms

As a part of the ongoing liberalization of the marketplace, Chinese regulators adopted the guideline called “Regulation of Equity Incentive Plans (trial)” to allow firms to provide employee incentives through employee stock option plans. Firms began initiating the plans in 2006. We investigate the impact of these plans on firm performance by comparing option-award firms with similar non-award matching firms. The change in ROE for the option-award firms is significantly higher than the matching firms. This is primarily due to their performance holding up better during the global financial crisis while the matching firms’ performance deteriorates. The stock price of these firms shows a positive reaction to the announcement, but no long-term abnormal returns. The better ROE performance for option-award firms is strong for subsets of the sample that are likely to benefit more from incentivized employees; specifically, privately owned firms, firms with higher board independence, and smaller firms. After various robustness tests, we conclude that the higher performance comes from the employee incentives, rather than earnings manipulation, a replacement of cash compensation, a binding of employees to executives, or gaming vesting periods.

Stock Options and Firm Performance: New Evidence from the French Market

AbstractThis study investigates the effect of stock option‐based compensation on the short‐term and long‐term performance of French companies. To the best of our knowledge, we provide the first empirical evidence describing the market reaction following initiations and renewals of Employee Stock Option (ESO) plans in France. We find that the French market reacts positively to initiations of ESO plans but does not consider their renewal as relevant information. Our results on the long‐term effect of ESO plans suggest that neither the size nor the value of the grants affect the firm's accounting and market performance. Similarly, corporate performance prior to the grant has no explanatory power of the size or value of the grant. This implies that, over our sample period, the relationship between option‐based compensation and corporate performance in France was inexistent, regardless of the direction considered.

Making sense of organizational environments: the adoption of employee stock options in the Indian technology sector

Using data collected from interviews with human resource managers, corporate executives, and compensation consultants in India, this paper examines the adoption of US-style employee stock option (ESO) plans among Indian information technology firms and foreign-based multinational corporations operating in India between 1998 and 2004. The findings suggest that Indian firms adopted ESOs more cautiously and granted options more selectively than those in Silicon Valley, where, by the mid-1990s, very broad grants at all organizational levels had become commonplace. The data also suggest that this more cautious and selective approach in India was driven primarily by labor market conditions, and a lack of cognitive-cultural and normative alignment between the ESO practice and the institutional environment of Indian knowledge workers. By taking seriously the perspectives of actors who play key roles in processes of practice adoption, the analysis and findings raise the issue of how our understanding of cross-national variation in the diffusion and structure of employee ownership practices, particularly in new settings, can be enhanced by new research designs and a deeper engagement with more recent developments in international human resource management research and institutional theory.

Stock Option Plans in Italy: Accounting Treatment, Financial Crisis, and Other Determinants

Many studies on employee stock option plans state that the favorable accounting treatment, even if not declared, has often been one of the main reasons for this form of compensation. According to that view, professionals and scholars forecasted that recognition required by IFRS 2 would imply a reduction in the granting of stock options as incentive means. On the other side, empirical evidence suggests that their widespread adoption cannot be explained by a single view, since many determinants play a role in their issue.In addition to the accounting change, stock options have recently been the target of growing criticism, especially when the financial crisis started to show its effects. That may have an impact not only on incentive effectiveness, but also on outrage costs limiting their use by listed firms.In such a perspective, the main purpose of the paper is to explore the impact of IFRS 2 and of the recent financial crisis on stock option granting. To achieve that objective, our analysis is focused on these external determinants, which will be tested together with other variables indicated by stock option literature (incentive alignment, financial constraints, and tax benefits).The analysis is carried out on the population of Italian listed companies on a ten-year time horizon (2000-2009). That setting is of particular interest to our research questions, since national GAAPs did not require any valuation in annual reports prior to 2005 and results from previous studies highlight a relevant role of external factors in explaining option granting.Empirical evidence suggests that: the mandatory transition to IFRS 2 did not have a significant effect on stock option granting, the issue of stock options is less likely to occur during the financial crisis, and firms with higher growth opportunities have a higher probability to grant stock options.

Preferred Stock: Usage And Characteristics

This study was conducted to determine the purposes for which corporations issued preferred stock and the types of characteristics attached to those issues. One hundred sixty-eight currently outstanding industrial preferred stock issues were researched. The most frequently given reasons for issuing preferred stock were to finance acquisitions and mergers, to reduce corporate debt, and for employee stock option plans. The majority of the preferred stocks studied were nonparticipating, cumulative, preferred over common as to assets, callable, convertible, and had voting rights.

Religious beliefs, gambling attitudes, and financial market outcomes

This study investigates whether geographic variation in religion-induced gambling norms affects aggregate market outcomes. We conjecture that gambling propensity would be stronger in regions with higher concentrations of Catholics relative to Protestants. Consistent with our conjecture, we show that in regions with higher Catholic–Protestant ratios, investors exhibit a stronger propensity to hold lottery-type stocks, broad-based employee stock option plans are more popular, the initial day return following an initial public offering is higher, and the magnitude of the negative lottery-stock premium is larger. Collectively, these results indicate that religion-induced gambling attitudes impact investors' portfolio choices, corporate decisions, and stock returns.

The Value-Relevance Of Stock-Based Employee Compensation Disclosures

<p class="MsoNormal" style="text-align: justify; margin: 0in 37.8pt 0pt 0.5in;"><span style="mso-bidi-font-style: italic;"><span style="font-size: x-small;"><span style="font-family: Batang;">This study employs pro-forma company footnote disclosures to assess the value-relevance of employee stock option compensation expense using the fair value method as stipulated by Statement of Financial Accounting Standard No. 123.<span style="mso-spacerun: yes;">  </span>The study is motivated by the controversy surrounding the issue of accounting for employee stock options and the countervailing effects of issuing stock options on firm value.<span style="mso-spacerun: yes;">  </span>Although accounting regulators and the business community agree that employee stock options have value and therefore, are a form of compensation, critics of the FASB’s proposed fair value method of accounting for employee stock options argue that measuring the compensation expense using contemporary models will result in unreliable and meaningless measures.<span style="mso-spacerun: yes;">  </span>Moreover, the expected future benefits from granting stock options suggest that this form of employee compensation is not a typical expense.<span style="mso-spacerun: yes;">  </span>We find a significant association between the disclosed compensation expense using the fair value method and firm value that is in the opposite direction from other income statement expenses.<span style="mso-spacerun: yes;">  </span>This result implies that the disclosed employee stock option expense is a value-relevant measure and the incentives derived from employee stock option plans provide value-increasing benefits to the firm.<span style="mso-spacerun: yes;">  </span>In addition, we find the positive association between the employee stock option expense and firm value is greater for firms with more growth opportunities.</span></span></span></p>

Employee Stock Option Plan

Employee Stock Option Plan

The elusive employee stock option plan‐productivity link: evidence from India

PurposeThe purpose of this paper is to delineate the effect of employee stock option plan (ESOP) on the corporate productivity in view of ever increasing competition among the firms to retain and attract qualified and competent manpower in India.Design/methodology/approachBased on productivity characteristics in pre‐ESOP adoption period (one year), the research paper studies the ESOP impact on corporate productivity in a three year post adoption period for a sample of 202 listed Indian companies. Nearly half of these companies (99 companies) were classified into control group (non‐ESOP companies) and the others (103 companies) were categorized as experimental group (ESOP companies). Asset turnover ratio (ATO), based on the exhaustive literature survey, was identified and considered exclusive productivity parameter in this research. The significance of productivity differentials among the control and experimental groups were tested using the Wilcoxon Signed Rank test.FindingsThe empirical evidence supports the hypothesis that ESOP does not improve the productivity performance of Indian corporate sector in short‐run. Furthermore, the variation of the two respective variables is not significant at any level of risk against the alternate hypothesis for 103 ESOP companies.Research limitations/implicationsThe results reported in the study are based on the single productivity parameter (ATO) for three year post ESOP measurement period, which is also limiting factors for obvious reasons.Practical implicationsThe outcomes of the study have wider implications for the HR professionals (designing a prudent ESOP plan), HR executives (ESOP implementations and its pitfalls) and the corporate‐employee combine for enriching mutual benefits for harmonious industrial relations.Originality/valueThe research paper under consideration is expected to be a valuable contribution to the existing literature and to different stakeholders identified above.

American GARCH employee stock option valuation

We implement a flexible simulation-based approach for the fair value of employee stock option (ESO) that accounts for the vesting period, departure risk and voluntary suboptimal early exercise. We introduce GARCH effects on the underlying asset and we analyze the price bias with respect to the constant volatility case. We also perform a sensitivity analysis with respect to changes in several ESO characteristics. We compare this valuation with FAS 123 method revealing a FAS overvaluation. Finally, we value a real ESO plan providing the confidence intervals for the estimated ESO prices.

Divisional Rent-Seeking, Stock Options and the Quality of Internal Capital Allocation

The allocation of resources within a firm is one of the most important decisions made by its management and the allocation of funds is organized in so-called internal capital markets. We empirically investigate to what extent firms’ resource allocation decisions are affected by the CEOs’ response to division-managers’ rent-seeking activities and whether equity incentives throughout the firm, i.e., Employee Stock Option Plans (ESOPs), can mitigate this problem. We argue that the CEO is herself an agent and prefers to use the capital budget as a substitute for increased take-home pay to compensate the division manager for his influence activities. Consistent with this argument, we empirically find that excess capital allocation is negatively associated with division-managers’ take-home pay. We further argue and find that equity incentives throughout the firm alleviate this problem by increasing the quality of internal capital allocation.

Religious Beliefs, Gambling Attitudes, and Financial Market Outcomes

We use religious background as a proxy for gambling propensity and investigate whether geographical variation in religion-induced gambling norms affects aggregate market outcomes. We examine four economic settings in which the recent literature has suggested a role for gambling and speculation. Our key conjecture is that gambling propensity would be stronger in regions with higher concentration of Catholics relative to Protestants. Consistent with our conjecture, we find that religion-induced gambling preferences influence the portfolio decisions of institutional investors. Investors located in regions with high Catholic-Protestant ratio (CPRATIO) exhibit a stronger propensity to hold stocks with lottery features. Further, in a corporate setting, we show that broad-based employee stock option plans, which are likely to appeal more to employees with stronger gambling preferences, are more popular in high CPRATIO regions. Examining the aggregate impact of gambling on stock returns, we find that the initial day return following an initial public offering is higher for firms located in high CPRATIO regions where local speculative demand is expected to be stronger. In a broader market setting, we find that the magnitude of the negative lottery-stock premium is larger in high CPRATIO regions. Collectively, our results indicate that religious beliefs, through their influence on gambling attitudes, impact investors' portfolio choices, corporate decisions, and stock returns.

Pola-pola Perilaku Eksekutif Berkaitn dengan Thapan Penawaran Opsi Saham: Uji Komprehensif di Sekitar Tanggal Hibah

This paper investigates the patterns of executive behavior to the each phase offer of stock option. Executives expected stock prices decreases prior to the grant date with a purpose to obtain the lower exercise and stock prices increases after the grant date with a purpose to obtain the larger gains. While, this study also investigats whether management manage factors of timing and option pricing model with identify the difference behavior of every step stock option offering. The amount of observation are 51 observations and the study finds that executives have ability to manage information around option grant date. The effect is stronger when executives release earnings before option grant date for period prior to ESOP. While, for period after ESOP, the effect is stronger with manage fair value factors are stock price volatility, but do not support for the risk-free interest rate and dividend yield. Based on phases of stock option offering, at prior to employee stock option plan, there are differences of influence of offer of the stock option on earnings management behavior at phase 1 and 2. However compared to phase 2, at phase 1 influence is the sharper than phase 2. After ESOP, slope of phase 3 is sharper than slope of phase 1 and 2.

On Valuing Employee Stock Option Plans with the Requisite Service Period Requirement

This paper examines issues involving employee stock option plans as a part of employee compensation. In particular, employee stock options requiring a requisite service period are viewed as an option on options and hence, a compound option, as the employee’s future market wage rate is unknown. Non-transferability of employee stock options is overcome by the well-known put-call parity theorem. Difficulties arise, however, if a firm is privately held. The paper derives a simple formula to value equities for privately held firms.

Intellectual Capital, Monitoring, and Risk: What Predicts the Adoption of Employee Stock Options?

We use empirical analysis to analyze company characteristics associated with the adoption and maintenance of broad‐based stock option plans. First, a cross‐sectional analysis evaluates what company characteristics are now associated the incidence of such plans. Second, a longitudinal analysis examines the company characteristics that predict the adoption of such plans. Our results show that firms with higher levels of intellectual capital and capital intensity are more likely to adopt and maintain employee stock option plans.

Employee stock option plan and employee attitudes

PurposeThe objective of this research is to present a causal model of the influence of stock options on psychological contract and employee attitudes, and report results of an initial empirical examination of this model.Design/methodology/approachTo test the model, data were collected using a survey methodology from 98 employees in a large financial services firm. Multiple‐regression equations were used to derive the path coefficients.FindingsThe psychological contract variable of met expectations mediated the relationships between stock options and tenure intent and organizational commitment thus providing support for the intrinsic value model. Equity perceptions mediated the relationship between stocks exercised and met expectations. Equity perceptions, however, did not mediate the relationship between stock options and employee attitudes. Similarly, stock earnings also had a direct effect on external career intent indicating that employees who had exercised their stock options were looking for outside career opportunities contrary to our hypothesis.Research limitations/implicationsFuture studies should attempt to reconcile the intrinsic versus extrinsic value stock options may have on employee attitudes. These results should be considered tentative and interpreted with caution due to the cross‐sectional nature of data. The support for the intrinsic model suggests that organizations that use stock options may expect positive attitudes from their employees.Originality/valueThis is believed to be the first study that attempts to develop and test a causal model.

Cross-Border Taxation of Employee Stock Options

The complexity of the taxation of employee stock options is escalated in a cross-border context. It is important to understand multi-jurisdictional tax differences from both the employee and employer perspective in order to avoid unnecessary tax exposure and liability. The current status of the taxation of employee stock option plans in the U.S. and the People's Republic of China is used to illustrate multi-jurisdictional taxation issues. Careful, prospective tax planning can significantly reduce an employee's cross-border tax liability.

Section 1032: Are We There Yet?

The paper discusses various issues related to Section 1032 of the Internal Revenue Code, which provides for nonrecognition of gain or losses by a corporation upon its receipt of or other property in exchange for stock. The recent development of certain equity derivatives that are not specifically addressed by Section 1032 provide the opportunity for whipsaw; nonrecognition under the provision is claimed when there is gain and a transaction that produces a loss is argued to escape application of the rule. It is asserted that Section 1032 is lacking with respect to equity derivatives because other instruments that have the same economic impact are subject to the provision. The issues discussed in the paper have been analyzed in two recent articles, the first by Alvin C. Warren and the second by Michael L. Schler. As discussed in the paper, an expansion of Section 1032 is the proper route in consideration of the intent expressed by Congress, the courts and the Service through enactments and rulings related to Section 1032. In answer to the questions posed in the title of the paper with regard to Section 1032 (Are we there yet?), the answer is: not yet. Expansion of Section 1032 will reduce the current problem of taxpayers utilizing a wait and see attitude and, depending on the result, shielding themselves from gain recognition pursuant to Section 1032 or structuring the transaction so that it falls outside Section 1032, allowing taxpayers to recognize a loss. With these issues in mind, Section II of the paper will provide a summary of legislative enactments and judicial and administrative rulings related to Section 1032. Thereafter, Section III of the paper will review the general scope and applicability of Section 1032 in current tax practice. Section IV of the paper will undertake an analysis of attempts to provide for a workable definition of money or other property in exchange for within the meaning of Section 1032 and the impact of the applicable rules on equity derivatives. Section V of the paper will discuss the effect of Section 1032 on employee stock option plans. Lastly, Section VI will review and discuss the proper scope of Section 1032 and proposals for amending the provision to reduce the opportunity for whipsaw.