Do Taxes Matter: Evidence of Individual and Corporate Tax Incentives on the Choice to Hold Shares Acquired from Exercise of Employee Stock Options

2009 ◽  
Author(s):  
George Ryan Huston ◽  
Thomas Joseph Smith
Keyword(s):  
Stock Options ◽  
Tax Incentives ◽  
Employee Stock Options ◽  
Corporate Tax

The Impact of Tax Incentives on the Choice to Hold Shares Acquired from Employee Stock Option Exercises

2012 ◽  
Vol 34 (2) ◽  
pp. 67-91 ◽  
Author(s):  
G. Ryan Huston ◽  
Thomas J. Smith
Keyword(s):  
Stock Options ◽  
Tax Incentives ◽  
Stock Option ◽  
Corporate Tax ◽  
Negative Relation ◽  
Employee Stock Option ◽  
Prior Literature ◽  
Tax Benefits ◽  
The Impact ◽  
Jel Classifications

ABSTRACT This paper extends prior stock option literature by examining the impact of individual and corporate tax incentives on the decision to hold or sell shares acquired through the exercises of incentive stock options (ISOs) and non-qualified stock options (NQSOs). We focus on factors found in prior literature to be associated with the choice to hold or sell in the context of the type of stock option exercised. Specifically, we find that the positive (negative) relation found in prior literature between the decision to hold shares following exercise and future returns (depth) is associated more with NQSOs than ISOs, consistent with individual tax incentives. Examining corporate tax incentives, we find that corporate tax benefits mitigate insiders' likelihood to hold shares obtained from ISO exercise. Furthermore, we find evidence that firms compensate employees to forgo individual tax benefits associated with holding shares from ISO exercise, and as this compensation increases, insiders are more likely to sell following exercise. JEL Classifications: H24; H25; J33.

Reducing Errors in Measures of Corporate Tax Incentives

2002 ◽  
Author(s):  
Lillian F. Mills ◽  
Kaye J. Newberry ◽  
Garth F. Novack
Keyword(s):  
Tax Incentives ◽  
Corporate Tax
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