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Employee stock options and innovation: Evidence from an exogenous shock to employee intellectual property rights

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  • Jang, Soomi
  • Kovacs, Tunde
  • Choi, Heeick

Abstract

This study uses an external shock, the 2008 Court of Appeals Federal Circuit (CAFC) ruling that weakened patent property rights of inventor-employees and strengthened those of employers, to examine employee option grants' effectiveness in motivating innovation. Firms that experience a decrease in the property rights of inventor-employees subsequently increase the value, number, delta, and vega of employee option grants, as well as innovation activities following the CAFC ruling. Our evidence suggests that employee stock option compensation is an important factor motivating employees to innovate.

Suggested Citation

  • Jang, Soomi & Kovacs, Tunde & Choi, Heeick, 2026. "Employee stock options and innovation: Evidence from an exogenous shock to employee intellectual property rights," Journal of Corporate Finance, Elsevier, vol. 96(C).
    • Handle: RePEc:eee:corfin:v:96:y:2026:i:c:s0929119925001798
    DOI: 10.1016/j.jcorpfin.2025.102911
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    JEL classification:

    • G39 - Financial Economics - - Corporate Finance and Governance - - - Other
    • G38 - Financial Economics - - Corporate Finance and Governance - - - Government Policy and Regulation
    • J32 - Labor and Demographic Economics - - Wages, Compensation, and Labor Costs - - - Nonwage Labor Costs and Benefits; Retirement Plans; Private Pensions
    • M52 - Business Administration and Business Economics; Marketing; Accounting; Personnel Economics - - Personnel Economics - - - Compensation and Compensation Methods and Their Effects

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