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Employee stock options and future firm performance: Evidence from option repricings

  • Aboody, David
  • Johnson, Nicole Bastian
  • Kasznik, Ron
Registered author(s):

    We investigate firms' operating performance subsequent to the repricing of executive and non-executive employee stock options. We find that, relative to non-repricers, repricing firms have a larger increase in operating income and cash flows in subsequent periods. This performance improvement is attributable to the underlying economic determinants of the decision to restore the options' incentive properties. However, only repricings of executive stock options are associated with improvement in performance; we find no such evidence for non-executive employees. Our findings suggest employee stock options provide sufficiently large incentive effects to favorably affect firms' performance, but primarily so at the executive level.

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    File URL: http://www.sciencedirect.com/science/article/B6V87-4Y34SPH-1/2/34d96f3605d518e46d0d79ef61d47a92
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    Article provided by Elsevier in its journal Journal of Accounting and Economics.

    Volume (Year): 50 (2010)
    Issue (Month): 1 (May)
    Pages: 74-92

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    Handle: RePEc:eee:jaecon:v:50:y:2010:i:1:p:74-92
    Contact details of provider: Web page: http://www.elsevier.com/locate/jae

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    2. Oyer, Paul & Schaefer, Scott, 2004. "Why Do Some Firms Give Stock Options To All Employees?: An Empirical Examination of Alternative Theories," Research Papers 1772r, Stanford University, Graduate School of Business.
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    7. 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.
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