Download or read book Inattention Forced Exercise and the Valuation of Executive Stock Options written by Hong Liu and published by . This book was released on 2014 with total page 24 pages. Available in PDF, EPUB and Kindle. Book excerpt: We develop a new Black-Scholes type closed-form valuation formula for executive stock options. This formula incorporates four important unique characteristics of these options that distinguish them from standard European options: (i) The presence of the vesting period; (ii) the tendency of executives to exercise portions of their grants right at the end of the vesting period; (iii) the ability of the executives to choose optimally whether to exercise their options or keep them; and (4) executives may be forced to early exercise their options, possibly due to severe liquidity shocks or due to unexpected departure. We use an extensive executive option data set to calibrate our model. We show that the standard Black-Scholes formula significantly overestimates the value of executive stock options.
Download or read book The Exercise and Valuation of Executive Stock Options written by Jennifer N. Carpenter and published by . This book was released on 1998* with total page 43 pages. Available in PDF, EPUB and Kindle. Book excerpt:
Download or read book Executive Turnover and the Valuation of Stock Options written by Daniel Klein and published by . This book was released on 2016 with total page 41 pages. Available in PDF, EPUB and Kindle. Book excerpt: This paper develops a model for the valuation of executive stock options (ESOs) considering two sources of early exercise: forced exercise due to executive turnover and voluntary exercise due to personal considerations. Using data of about 4,000 US executives, I estimate separate hazard rate factor models for both sources of early exercise. In a second step, I combine both conditional hazard exercise models for the valuation of a representative ESO in a Monte Carlo simulation. Analysis of the individual valuation impact of each source of early exercise shows that turnover induced exercises are responsible for most of the valuation discount of ESOs to market traded options. This result is important as most of the current literature on ESOs concentrates solely on voluntary exercises. I further find that the common practice valuation approach suggested by the Financial Accounting Standards Board (FASB) consistently underestimates ESO values.
Download or read book Executive Stock Option Exercises and Inside Information written by Jennifer N. Carpenter and published by . This book was released on 2008 with total page 35 pages. Available in PDF, EPUB and Kindle. Book excerpt: This paper examines whether corporate insiders use private information to time the exercises of their executive stock options. Prior to May 1991, insiders had to hold the stock they acquired through option exercise for six months. We find that exercises from this regulatory regime precede significantly positive abnormal stock returns. This suggests that insiders timed exercises so that the subsequent forced investment in the stock coincidedwith favorable price performance. By contrast, we find little evidence of the use of inside information totime exercises since the removal of the holding restriction in May 1991. When insiders can sell the acquired shares immediately, the use of private information should manifest itself as negative abnormal stock price performance following option exercise. However, only in the subsample of exercises by top managers at small firms, a tiny fraction of the full sample, do we find significantly negative post-exercise stock price performance after May 1991. Weconclude that, in most cases, insiders' potential information advantage in timing exercises is not an important issue in valuing executive stock options.
Download or read book The Valuation and Exercise of Executive Stock Options written by Jennifer N. Carpenter and published by . This book was released on 1996 with total page 34 pages. Available in PDF, EPUB and Kindle. Book excerpt:
Download or read book Optimal Exercise of Executive Stock Options and Implications for Valuation written by Jennifer N. Carpenter and published by . This book was released on 2008 with total page 22 pages. Available in PDF, EPUB and Kindle. Book excerpt: The cost of executive stock options to shareholders has become a focus of attention in finance and accounting. The difficulty is that the value of these options depends on the exercise policies of the executives. Because these options are nontransferable, the usual theory does not apply. We analyze the optimal exercise policy for a utility-maximizing executive and indicate when the policy is characterized by a critical stock price boundary. We provide a counterexample in which the executive exercises at low and high stock prices but not in between. We show how the policy varies with risk aversion, wealth, and volatility and explore implications for option value. For example, option value can decline as volatility rises.
Download or read book Executive Stock Options written by United States. Congress. Senate. Committee on Homeland Security and Governmental Affairs. Permanent Subcommittee on Investigations and published by . This book was released on 2007 with total page 256 pages. Available in PDF, EPUB and Kindle. Book excerpt:
Download or read book Employee Stock Option Compensation written by Florian Wolff and published by Springer Science & Business Media. This book was released on 2012-12-06 with total page 263 pages. Available in PDF, EPUB and Kindle. Book excerpt: Florian Wolff analyses how executives perceive their stock options and how their personal expectations and risk preferences affect the value they assign to them. He shows that stock options may be worth their money because people behave irrationally.
Download or read book Exercising Executive Stock Options written by Kimberly J. Smith and published by . This book was released on 1998 with total page 169 pages. Available in PDF, EPUB and Kindle. Book excerpt:
Download or read book Executive Stock Options written by Daniel Klein and published by . This book was released on 2010 with total page 181 pages. Available in PDF, EPUB and Kindle. Book excerpt:
Download or read book The Pay to Performance Incentives of Executive Stock Options written by Brian J. Hall and published by . This book was released on 1998 with total page 60 pages. Available in PDF, EPUB and Kindle. Book excerpt: Detailed data about stock option contracts are used to measure and analyze the pay to performance incentives of executive stock options. Two main issues are addressed. The first is the pay to performance incentives created by the revaluation of stock option holdings. The findings suggest that if CEO stock holdings were replaced by the same ex ante value of stock options, the pay to performance sensitivity of the median CEO would approximately double. Relative to granting at the money options, a value neutral policy of regularly granting options out of the money (Pe=1.5P) would increase pay to performance sensitivity by approximately 27 percent. The second issue is the pay to performance created by yearly stock option grants. Because most stock option plans are multi year plans, it is shown that different option granting plans have significantly different pay to performance incentives since changes in current stock prices affect the value of future option grants in different ways. Four option granting policies are compared and contrasted. Ranked from highest powered to lowest powered, these policies are: 1) LBO-style up-front options, 2) fixed number policies, 3) fixed value policies and 4) an (unofficial) policy of "back-door repricing." Empirical evidence suggests that (even ignoring the revaluation of past option grants) the pay to performance relationship in practice is stronger for 1) stock option grants relative to salary and bonus, and 2) fixed number plans relative to non-fixed number plans.
Download or read book The Valuation of Executive Stock Options when Executives Can Influence the Payoffs written by Tung-Hsiao Yang and published by . This book was released on 2008 with total page 44 pages. Available in PDF, EPUB and Kindle. Book excerpt: It is widely believed that because of liquidity constraints and vesting requirements, executives value stock options at less than market or Black-Scholes-Merton values, as would be perceived by outside investors. This belief is contingent, however, on a subtle assumption that executives are, like shareholders, price takers with no ability to influence the underlying stock. But executives clearly have the ability to influence the stock, as that is the principal reason why they are granted the options. As such, executives are likely to be more willing to hold options than would ordinary investors, an important fact not captured in conventional models. We develop a model in which executives exert costly effort to alter the stock return distribution. We find that when executives act optimally, their options are worth much more than generally believed and potentially more than the market values of the options. Thus, conventional wisdom that the cost of stock options is less than the market value of these options is not necessarily true as these options can even be worth more than Black-Scholes-Merton value. In addition, this factor changes the behavior of early exercise, leading to exercise at higher threshold prices for higher quality executives and can make shorter term options be worth more than longer term options.
Download or read book Valuation of executive stock options written by Lars Peter Jennergren and published by . This book was released on 1992 with total page 21 pages. Available in PDF, EPUB and Kindle. Book excerpt:
Download or read book The Valuation and Expensing of Executive Stock Options and Impact on the Value of the Firm written by Rasul M. Raheem and published by . This book was released on 2003 with total page 62 pages. Available in PDF, EPUB and Kindle. Book excerpt:
Download or read book The Repricing of Executive Stock Options written by Don M. Chance and published by . This book was released on 2010 with total page pages. Available in PDF, EPUB and Kindle. Book excerpt: We examine the incidence of corporations lowering the exercise prices of their executive stock options. These options can be viewed as a combination of a down-and-out call option and a down-and-in call option with the exercise price equal to the barrier. Using barrier option pricing theory, we find that at a minimum this features adds 7-10 percent to the value of the options on the grant date. We also examine the market, industry and firm-specific performance of a sample of 37 firms and 53 reset events. The period covered was 250 days before and after the day on which the firm reset the exercise prices of its executive stock options. The evidence strongly supports the conclusion that resetting the exercise price follows a period of poor firm-specific performance. The magnitude of the reduction in the exercise price was positively related to the firm's stock price performance and using a value- weighted market portfolio, it was negatively related to the market's performance. No evidence supports the contention that lowering the exercise price brings an end to the firm's problems and leads to an increase in shareholder wealth. Though the direct dollar impact at the time of the reset is relatively small to the shareholders, it is not insignificant to management. Allowing for the possibility of resetting after a stock price decline can create a perverse incentive under certain circumstances for managers to deliberately drive the stock price down further. In addition management has a greater incentive to engage in high risk projects than it would have with ordinary non- esettable options. These incentives and our results that the resets are indeed done, sometimes repeatedly, following poor firm-specific performance suggest that resetting is not in the best interests of shareholders, who should certainly question this practice.
Download or read book Executive Stock Options written by Neil Brisley and published by . This book was released on 2001 with total page pages. Available in PDF, EPUB and Kindle. Book excerpt:
Download or read book The Valuation of Executive Stock Options that Incorporate Reset Provisions written by John Joseph Stansfield and published by . This book was released on 2002 with total page pages. Available in PDF, EPUB and Kindle. Book excerpt:
