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

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  • Aboody, David
  • Johnson, Nicole Bastian
  • Kasznik, Ron

Abstract

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.

Suggested Citation

  • Aboody, David & Johnson, Nicole Bastian & Kasznik, Ron, 2010. "Employee stock options and future firm performance: Evidence from option repricings," Journal of Accounting and Economics, Elsevier, vol. 50(1), pages 74-92, May.
  • Handle: RePEc:eee:jaecon:v:50:y:2010:i:1:p:74-92
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    References listed on IDEAS

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    Citations

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    Cited by:

    1. Boubaker Adel & Berrahal Amira, 2015. "The impact of stock-options on the company’s financial performance," Bulletin of Business and Economics (BBE), Research Foundation for Humanity (RFH), vol. 4(2), pages 63-72, June.
    2. Chia-Ying Chan & Vivian W. Tai & Kuo-An Li & Ranko Jelic, 2012. "Do Market Participants Favor Employee Stock Option Schemes? Evidence from Taiwan," Emerging Markets Finance and Trade, Taylor & Francis Journals, vol. 48(0), pages 110-132, January.
    3. Larcker, David F. & McCall, Allan L. & Ormazabal, Gaizka, 2013. "Proxy advisory firms and stock option repricing," Journal of Accounting and Economics, Elsevier, vol. 56(2), pages 149-169.
    4. Leon Li & Nen-Chen Richard Hwang, 2017. "Prospect Theory and Earnings Manipulation: Examination of the Non-Uniform Relationship between Earnings Manipulation and Stock Returns Using Quantile Regression," Working Papers in Economics 17/25, University of Waikato.
    5. Geert Braam & Erik Poutsma, 2015. "Broad-Based Financial Participation Plans and Their Impact on Financial Performance: Evidence from a Dutch Longitudinal Panel," De Economist, Springer, vol. 163(2), pages 177-202, June.
    6. repec:eee:jfinec:v:125:y:2017:i:2:p:389-415 is not listed on IDEAS
    7. Chia-Ying Chan & Vivian W. Tai & Kuo-An Li & Ranko Jelic, 2012. "Do Market Participants Favor Employee Stock Option Schemes? Evidence from Taiwan," Emerging Markets Finance and Trade, Taylor & Francis Journals, vol. 48(0), pages 110-132, January.
    8. repec:eee:jjieco:v:44:y:2017:i:c:p:13-25 is not listed on IDEAS

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