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Stock option compensation and equity values

  • Panu Kalmi

    ()

    (Helsinki School of Economics)

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    I present a model where increasing employee participation in a stock option scheme leads to higher performance but with a cost to shareholders. I show that firms with higher market values per employee are more likely to have an option scheme and they offer stock options to a broader group of employees. The model yields empirical predictions that are consistent with the stock option boom of the late 1990s and their reduced popularity after the stock market decline.

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    File URL: http://www.accessecon.com/pubs/EB/2006/Volume10/EB-06J30001A.pdf
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    Article provided by AccessEcon in its journal Economics Bulletin.

    Volume (Year): 10 (2006)
    Issue (Month): 2 ()
    Pages: 1-8

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    Handle: RePEc:ebl:ecbull:eb-06j30001
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    1. Hanlon, Michelle & Rajgopal, Shivaram & Shevlin, Terry, 2003. "Are executive stock options associated with future earnings?," Journal of Accounting and Economics, Elsevier, vol. 36(1-3), pages 3-43, December.
    2. Brian J. Hall & Kevin J. Murphy, 2003. "The Trouble with Stock Options," NBER Working Papers 9784, National Bureau of Economic Research, Inc.
    3. Core, John E. & Guay, Wayne R., 2001. "Stock option plans for non-executive employees," Journal of Financial Economics, Elsevier, vol. 61(2), pages 253-287, August.
    4. Brian J. Hall & Kevin J. Murphy, 2003. "The Trouble with Stock Options," Journal of Economic Perspectives, American Economic Association, vol. 17(3), pages 49-70, Summer.
    5. Ittner, Christopher D. & Lambert, Richard A. & Larcker, David F., 2003. "The structure and performance consequences of equity grants to employees of new economy firms," Journal of Accounting and Economics, Elsevier, vol. 34(1-3), pages 89-127, January.
    6. Paul Oyer, 2004. "Why Do Firms Use Incentives That Have No Incentive Effects?," Journal of Finance, American Finance Association, vol. 59(4), pages 1619-1650, 08.
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