scholarly journals Risk metrics: assessing executive stock options plans

2008 ◽  
Vol 5 (2) ◽  
pp. 409-413
Author(s):  
P.W.A. Dayananda
Keyword(s):  
Empirical Research ◽  
Stock Options ◽  
Research Work ◽  
Stock Option ◽  
Executive Stock Options ◽  
Executive Stock Option

This paper considers deriving measures for assessing the benefits to firms as a result of granting executive stock option plans. The metrics developed relate to assessing the expected total earnings of the company attributed to executives due to executive stock option award. The paper derives metrics based on number of shares as well as on total value of assets. The values of these metrics can be used to compare and asses the benefits to the company in awarding stock option grants by comparing the metrics with actual realized changes in total earnings. The research work in the paper complements the empirical research of Murphy (1999) and others who found the pay-performance sensitivities due to executive stock option awards. Illustrations of the metrics are carried out to show their properties and in particular for the firm WAL-MART.

scholarly journals Executive stock options with a rebate: Valuation formula

2006 ◽  
Vol 3 (4) ◽  
pp. 76-79
Author(s):  
P.W.A. Dayananda
Keyword(s):  
Discrete Time ◽  
Continuous Time ◽  
Stock Price ◽  
Stock Options ◽  
Stock Option ◽  
Executive Stock Options ◽  
Exercise Time ◽  
Executive Stock Option ◽  
Exercise Period ◽  
Over Time

We examine the valuation of executive stock option award where there is a rebate at exercise. The rebate depends on the performance of the stock of the corporation over time the period concerned; in particular we consider the situation where the executive can purchase the stock at exercise time at discount proportional to the minimum value of the stock price over the exercise period. Valuation formulae are provided both when assessment is done in discrete time as well as in continuous time. Some numerical illustrations are also presented

scholarly journals EXECUTIVE STOCK OPTION PLANS: UJI PENGELOLAAN LABA SELAMA VESTING PERIOD

2018 ◽  
Vol 14 (4) ◽  
pp. 478-500
Author(s):  
Nur Fadjrih Asyik
Keyword(s):  
Stock Options ◽  
Stock Exchange ◽  
Early Stage ◽  
Financial Statements ◽  
Stock Option ◽  
Share Price ◽  
Executive Stock Option ◽  
Grant Program ◽  
Final Sample ◽  
A Company

This study examine earnings management behavior related to compensation in the form of stock options during implementation of the grant program (vesting period). The study also examine and identify the differences in behavior during the execution of stock options. Companies as a sample in this study is a company listed in the Indonesia Stock Exchange, which has adopted the Executive Stock Option Plan and restricted to the companies that publish financial statements as of December 31 for the year 2007 to 2009. Final sample of this research into as many as 21 sample companies and the number of observations are 63 observational studies. The result of testing H1 shows that the more stock options offered to employees, the managers more motivated to manage earnings down prior to offering stock options. The results are consistent with previous studies of the behavior of managers who expect the share price decline before the date of grant, so the manager to pay compensation for stock options with a relatively cheap price. The results of testing H2a and H2b show that the more stock options offered to employees, the managers more motivated to manage earnings upward after offering stock options. Results show that an early stage implementation of executive stock option plans, executives trend to behave increasing income until vesting period final

scholarly journals EXECUTIVE STOCK OPTION PLANS: UJI PENGELOLAAN LABA SELAMA VESTING PERIOD

2017 ◽  
Vol 14 (4) ◽  
pp. 478
Author(s):  
Nur Fadjrih Asyik
Keyword(s):  
Stock Options ◽  
Stock Exchange ◽  
Early Stage ◽  
Financial Statements ◽  
Stock Option ◽  
Share Price ◽  
Executive Stock Option ◽  
Grant Program ◽  
Final Sample ◽  
A Company

This study examine earnings management behavior related to compensation in the form of stock options during implementation of the grant program (vesting period). The study also examine and identify the differences in behavior during the execution of stock options. Companies as a sample in this study is a company listed in the Indonesia Stock Exchange, which has adopted the Executive Stock Option Plan and restricted to the companies that publish financial statements as of December 31 for the year 2007 to 2009. Final sample of this research into as many as 21 sample companies and the number of observations are 63 observational studies. The result of testing H1 shows that the more stock options offered to employees, the managers more motivated to manage earnings down prior to offering stock options. The results are consistent with previous studies of the behavior of managers who expect the share price decline before the date of grant, so the manager to pay compensation for stock options with a relatively cheap price. The results of testing H2a and H2b show that the more stock options offered to employees, the managers more motivated to manage earnings upward after offering stock options. Results show that an early stage implementation of executive stock option plans, executives trend to behave increasing income until vesting period final.

Executive Stock Options, Missed Earnings Targets, and Earnings Management

2008 ◽  
Vol 83 (1) ◽  
pp. 185-216 ◽  
Author(s):  
Mary Lea McAnally ◽  
Anup Srivastava ◽  
Connie D. Weaver
Keyword(s):  
Earnings Management ◽  
Stock Price ◽  
Stock Options ◽  
Empirical Studies ◽  
Stock Option ◽  
Annual Data ◽  
Executive Stock Options ◽  
Anecdotal Evidence ◽  
Strike Price ◽  
Earnings Targets

This paper examines whether stock-option grants explain missed earnings targets, including reported losses, earnings declines, and missed analysts' forecasts. Anecdotal evidence and surveys suggest that managers believe that missing an earnings target can cause stock-price drops (Graham et al. 2006). Empirical studies corroborate this notion (Skinner and Sloan 2002; Lopez and Rees 2002). Thus, a missed target could benefit an executive via lower strike price on subsequent option grants. Prior option grant studies explore only general downward earnings management (Balsam et al. 2003; Baker et al. 2003), but our study is the first to explore whether option grants encourage missed earnings targets. Indeed, if missed targets drive the prior results, then the literature has failed to document an important negative outcome of stock-option incentives. We use quarterly and annual data for fixed-date options granted after firms announce they have missed earnings targets. We find that firms that miss earnings targets have larger and more valuable subsequent grants. Further, we find that the likelihood of missing earnings targets for firms that manage earnings downward increases with stock-option grants. To control for the possibility that firms miss earnings targets for operational reasons, we only include firms that likely managed earnings downward (Dechow et al. 1995; Phillips et al. 2003). Backdating or opportunistic timing of grants cannot explain our results because we include only fixed-date grants. While many studies explicitly consider whether and why managers meet or beat earnings targets, ours is the first study to find that some managers may seek to miss earnings targets (Burgstahler and Dichev 1997).

Stock Options and Total Payout

2009 ◽  
Vol 44 (2) ◽  
pp. 391-410 ◽  
Author(s):  
Charles J. Cuny ◽  
Gerald S. Martin ◽  
John J. Puthenpurackal
Keyword(s):  
Panel Data ◽  
Stock Options ◽  
Fixed Effects ◽  
Stock Option ◽  
Executive Stock Options ◽  
Ceteris Paribus ◽  
Earnings Per Share

AbstractIn this paper, we examine how stock option usage affects total corporate payout. Using fixed-effects panel data estimators on various samples of ExecuComp firms from 1993 to 2005, we find the higher the executive stock options, the lower the total payout, ceteris paribus. We also find some evidence that firms increase payouts through repurchases in order to offset earnings per share dilution that occurs due to usage of executive and non-executive stock options. However, incentives from not having dividend protection for options appear to dominate those from antidilution, resulting in lower total payout for firms with higher options usage.

Option repricing and executive retention – revisited

2016 ◽  
Vol 15 (4) ◽  
pp. 499-517
Author(s):  
Sandra Renfro Callaghan ◽  
Chandra Subramaniam ◽  
Stuart Youngblood
Keyword(s):  
Stock Price ◽  
Stock Options ◽  
Control Sample ◽  
Stock Option ◽  
Executive Turnover ◽  
Content Type ◽  
Executive Stock Option ◽  
Managerial Talent ◽  
Option Repricing ◽  
Stock Option Repricing

Purpose This paper aims to directly test the assertion by proponents of executive stock option repricing that repricing leads to increased management retention. Previous studies find either no effect or decreased retention following stock price repricing. This paper uses a more precise research design to re-examine the relationship between stock option retention and management retention. Design/methodology/approach The authors use an empirical methodology and construct a sample of 158 firms and 201 repricing events, and a control sample of 201 non-repricing firms. They then examine executive turnover in the four years following the stock option repricing event. Findings It was found that, consistent with agency theory, stock option repricing actually results in greater executive retention. Specifically, CEO retention is significantly greater for repricing firms relative to non-repricing firms for up to three years following the repricing date, and non-CEO executive retention is significantly greater for two years. Research limitations/implications Firms continue to restructure management through stock option repricing. However, recent option repricing has been undertaken during a period when the economy is in decline, making it is difficult to disentangle effects of option repricing on management retention. Hence, this paper uses repricing data from an earlier period, from 1992-1997, when the economy was good. Originality/value Many firms argue that when stock options are out-of-the-money and managerial talent is in demand, repricing executive stock options is necessary to retain managers. Previous studies find contradictory or no support for this view. Using a much more precise methodology, this paper shows that firms do retain managers when they reprice their options compared to when they do not.

scholarly journals Moderating Effects of Agency Problems and Monitoring Systems on the Relationship between Executive Stock Option and Audit Fees: Evidence from Korea

2018 ◽  
Vol 10 (11) ◽  
pp. 4041
Author(s):  
Sang Cheol Lee ◽  
Jaewan Park ◽  
Mooweon Rhee ◽  
Yunkeun Lee
Keyword(s):  
Emerging Markets ◽  
Firm Value ◽  
Stock Options ◽  
Agency Problems ◽  
Audit Fees ◽  
Stock Option ◽  
Monitoring Systems ◽  
Executive Stock Options ◽  
Moderating Effects ◽  
The Relationship

Since executive stock options may give rent-seeking incentives to CEOs, CEOs with stock options are likely to misallocate corporate resources to seek personal gains, which in turn may lead to a decrease in firm value. High-quality audit services can reduce the negative impacts of executive stock options on firm value and help firms to ensure sustainable growth. However, while most of the existing accounting literature related to executive stock options (ESO) is mainly focused on earnings management, there are relatively few studies that investigate the relation between ESO and audit fees. At the same time, while previous studies on ESO have been conducted in advanced countries, few studies have identified the relationship between ESO and audit fees in emerging markets. Therefore, it is necessary to examine the effect of ESO under circumstances different from those of developed countries. To fill this gap, we investigated the association between executive stock options and audit fees and examine the moderating effects of agency problems and monitoring systems on the relationship. Using 462 observations from 110 nonfinancial Korean listed companies, for the period of 2000 to 2005, we found that executive stock options are positively related to audit fees. In addition, we found that the effects of executive stock options on audit fees are even higher in firms with high agency problems, effective internal monitoring systems, and major accounting firms. This study can help regulatory agencies to validate audit fee regulations, such as the International Standard on Auditing, that consider ESO a significant risk factor. In addition, these results can help external auditors to set up the specific guidelines for pricing audit fees. Furthermore, the results of this study will contribute to the construction of more desirable corporate governance structure in Korean companies, which in turn would not only enhance firm value but also strengthen the sustainability of companies belonging to the emerging markets.

scholarly journals Stock options: do they influence dividend payments?

2021 ◽  
Vol ahead-of-print (ahead-of-print) ◽  
Author(s):  
Janaina Muniz ◽  
Fernando Galdi ◽  
Felipe Storch Damasceno
Keyword(s):  
Stock Options ◽  
Design Methodology ◽  
Performance Metrics ◽  
Positive Association ◽  
Stock Option ◽  
Content Type ◽  
Executive Stock Option ◽  
Dividend Payments ◽  
Remuneration Policy ◽  
The Relationship

Purpose This study aims to investigate whether there is any influence of the option plan to purchase shares protected from dividends to determine the distribution of dividends in Brazilian companies. Design/methodology/approach The authors used a Tobit dynamic and regressive regression model because their sample has an index higher than 30% of companies that do not pay dividends. The sample includes companies that pay dividends or not and pay their executives with executive stock option plans and is composed of 1,990 observations from 356 companies from 2010 to 2016. Findings The results indicated that the presence of a dividend protection clause has a positive association with the distribution of dividends. The authors sought to clarify that companies with a stock option plan protected by the distribution of dividends face fewer restrictions on the distribution of dividends. The authors found that most companies still use only stock options to benefit middle-ranking positions and fit the plan in their remuneration policy. The monitoring of these plans lasts an average of seven years, and specific acquisition conditions are not established with their beneficiaries, who must remain in the company and observe performance metrics. Originality/value This study is relevant because the relationship between dividends and stock options has not yet been analyzed in Brazil, especially concerning a dividend-protected option plan, which is a relatively recent modality, even unknown to some companies.

scholarly journals Corporate Performance, Stock Option Compensation, And Measurement Error In CEO Pay

2011 ◽  
Vol 12 (1) ◽  
pp. 1 ◽  
Author(s):  
Emmett H. Griner
Keyword(s):  
Measurement Error ◽  
Stock Options ◽  
Corporate Performance ◽  
Stock Option ◽  
Future Research ◽  
Executive Stock Options ◽  
Executive Pay ◽  
Total Compensation ◽  
Ceo Pay ◽  
Option Compensation

Previous investigations of the association between executive pay and corporate performance have relied heavily on the sum of salary and bonus as a proxy for total compensation. This study shows that the sum of salary and bonus contains a substantial amount of unsystematic measurement error. The results underscore the need for future research in this area to use compensation proxies that incorporate executive stock options.

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