Employee Stock Option-Implied Risk Attitude Under Rank-Dependent Expected Utility

2013 ◽  
Author(s):  
Hamza Bahaji ◽  
Jean-Francois Casta
Keyword(s):  
Expected Utility ◽  
Risk Attitude ◽  
Stock Option ◽  
Employee Stock Option ◽  
Rank Dependent Expected Utility

scholarly journals Risk Attitude in Real Decision Problems

2008 ◽  
Vol 8 (1) ◽  
Author(s):  
Fabrizio Botti ◽  
Anna Conte ◽  
Daniela Teresa Di Cagno ◽  
Carlo D'Ippoliti
Keyword(s):  
Decision Making ◽  
Significant Role ◽  
Expected Utility ◽  
Unobserved Heterogeneity ◽  
Risk Attitude ◽  
Decision Problems ◽  
Probability Weighting ◽  
Decision Making Under Risk ◽  
Rank Dependent Expected Utility ◽  
Better Than

Abstract We use data from 298 showings of the television program "Affari Tuoi," which involves contestants making decisions between risky prospects with possible prizes of up to half a million euros, to estimate three models of decision-making under risk: Expected Utility, Rank-Dependent Expected Utility and Regret-Rejoice. We find that Regret-Rejoice does not significantly improve upon Expected Utility, while Rank-Dependent outperforms it. Interestingly, we find that the CARA specification fits significantly better than the conventionally-adopted CRRA specification. Crucially, we find a significant role for unobserved heterogeneity, implying that our estimates provide more superior estimates of risk attitude and of probability weighting than other studies.

Discretion in Financial Reporting: The Voluntary Adoption of Fair Value Accounting for Employee Stock Options

2004 ◽  
Vol 18 (2) ◽  
pp. 97-108 ◽  
Author(s):  
Dahlia Robinson ◽  
Diane Burton
Keyword(s):  
Financial Reporting ◽  
Fair Value ◽  
Stock Option ◽  
Employee Stock Options ◽  
Market Returns ◽  
Employee Stock Option ◽  
Accounting Reports ◽  
Voluntary Adoption ◽  
The Impact ◽  
Is Value

This paper investigates the market reaction to announcements by firms of their decision to adopt the fair value provisions of SFAS No. 123 in accounting for their employee stock option (ESO) expense. Additionally, this paper examines ESO usage and expense of adopting firms and compares the impact of the expense on profitability measures for adopting firms relative to a matched set of control firms. We find a positive and significant abnormal return in the three days around the adoption announcements, suggesting that the decision to expense using the fair value method is value relevant. The positive abnormal announcement returns are mainly attributable to the earlier announcements, consistent with early announcements serving as a credible signal of a commitment to transparency in financial reporting. We find evidence that in the three years prior to the announcement year, adopting firms report significantly higher earnings than control firms yet fail to earn higher market returns, suggesting that adopters stand to benefit the most by improving the market's perception of their accounting reports. We also find that ESO usage, ESO expense, and the impact of ESO expense on profitability are significantly lower for adopters relative to control firms, although the impact of ESO expense is economically significant for 43 percent of the adopters.

SFAS No. 123 Disclosures and Discounted Cash Flow Valuation

2000 ◽  
Vol 14 (2) ◽  
pp. 169-189 ◽  
Author(s):  
Leonard C. Soffer
Keyword(s):  
Cash Flow ◽  
Stock Options ◽  
Stock Option ◽  
Financial Statement ◽  
Employee Stock Options ◽  
Financial Statement Analysis ◽  
Discounted Cash Flow ◽  
Employee Stock Option ◽  
Valuation Technique ◽  
Discounted Cash Flow Valuation

One of the cornerstones of financial statement analysis is the discounted cash flow valuation. Despite the broad use of this valuation technique, and the economic importance of employee stock options to firm values, there is little guidance on how employee stock options should be incorporated in a valuation. This paper provides a comprehensive approach to doing so, including consideration of the income tax implications of option exercises, the simultaneity of equity and option valuation, and the use of the disclosures that were mandated recently by Statement of Financial Accounting Standards No. 123. The paper provides a comprehensive example using Microsoft's fiscal 1997 financial statements and employee stock option disclosure. This paper should be of interest to academics and practitioners involved in corporate valuation and financial statement analysis.

THE EFFECTS OF FIRM CHARACTERISTICS AND RECOGNITION POLICY ON EMPLOYEE STOCK OPTIONS PRICES AFTER CONTROLLING FOR SELF-SELECTION

2014 ◽  
Vol 09 (02) ◽  
pp. 1440003
Author(s):  
CHII-SHYAN KUO ◽  
SHIH-TI YU
Keyword(s):  
Firm Value ◽  
Threshold Model ◽  
Stock Option ◽  
Share Price ◽  
Employee Stock Options ◽  
Firm Characteristics ◽  
Employee Stock Option ◽  
Large Size ◽  
Self Selection ◽  
Recognition Rule

We examine whether and how firm characteristics, including firm size and liquidity, affect the relation between employee stock option (ESO) grants (as proxied by disclosed ESO expenses) and firm value. We also investigate how the implementation of a new share-based compensation recognition rule affects the pricing effect of ESOs. Prior studies have provided mixed results concerning how ESOs affect firm value. We argue that their findings could be attributable to self-selection and a non-uniform ESO-share price relation. We use the threshold model to address our research questions after controlling for self-selection bias. We find that markets tend to positively price ESOs in the case of firms characterized by large size and low liquidity. In addition, we find that after the new rule came into effect, ESOs became positively associated with firm value. These results are congruent with ownership and symbolic value theories, the lifecycle stages hypothesis and the contention that an ESO expensing policy enhances the quality of financial statements.

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

2017 ◽  
Vol 14 (1) ◽  
pp. 1
Author(s):  
Nur Fadjrih Asyik
Keyword(s):  
Firm Performance ◽  
Capital Structure ◽  
Stock Options ◽  
Stock Option ◽  
Company Performance ◽  
Employee Stock Option ◽  
Sensitivity Level ◽  
The Impact ◽  
Option Compensation ◽  
Stock Option Compensation

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 and share-ownership effects on innovation

2018 ◽  
Vol 37 (2) ◽  
pp. 161-168 ◽  
Author(s):  
Muhammad Usman ◽  
Shufang Xiao ◽  
Weiwei Li
Keyword(s):  
Stock Option ◽  
Share Ownership ◽  
Employee Stock Option

Accrual management and the decision to sell or hold shares acquired from the exercise of employee stock options

2020 ◽  
pp. 0000-0000
Author(s):  
Thomas Smith ◽  
G. Ryan Huston ◽  
Richard M. Morton
Keyword(s):  
Stock Option ◽  
Employee Stock Options ◽  
Short Term ◽  
Post Exercise ◽  
Employee Stock Option ◽  
Holding Period ◽  
Before And After ◽  
Accrual Management ◽  
The Impact

This study extends the employee stock option literature by examining the impact of accrual management, before and after stock option exercise, on the timing of sales of shares acquired at exercise. We find evidence that accrual management prior to exercise is positively associated with the decision to quickly sell shares after exercise, facilitating a short-term exercise-and-sell strategy. Alternatively, we find that, among executives initially choosing to hold at exercise, tax incentives appear to drive both post-exercise accrual management and the timing of sale transactions. Specifically, our results suggest that executives use income-increasing accruals during the holding period to bolster their stock option gains sand then sell immediately after satisfying the minimum (twelve month) holding period for long-term capital gain treatment. These results provide context for prior research that found evidence of earnings management leading up to option exercise on the expectation of an immediate sale.

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