The Design and Success of Stock Options Plans for New Economy Firms in Germany
In recent years, the use of stock options as an incentive compensation scheme has evolved to be one of the most debated topics in the finance literature as well as in the corporate world. The investigations into the option granting practices at a number of U.S. firms, which were accused of fraudulent backdating options, as well as the compensation schemes of top bankers and other top executives during the current financial crisis, heated up this debate even more. Our study contributes to the empirical research on stock option plans (SOPs) by focusing on start-up or 'new economy' firms in Germany. For the 329 firms that went public at the 'Neuer Markt', a special stock market segment for young growth companies in Germany, we find a high popularity of stock options in that more than 90% of all IPOs implemented at least one stock option plan (SOP) at the time of the IPO or later on. These SOPs were broad-based and included rank and file employees as the options' recipients. Our empirical results reveal--at least with hindsight--that accepting stock options as part of an overall salary package did not pay off financially for employees during that time period. Furthermore, the success and performance of the investigated SOPs were influenced by their statutory design and the succession of three different lock-up periods. These made a profitable option exercise for employees very difficult. Our findings question the rationale behind the design, introduction, and implementation of SOPs during the time of the 'Neuer Markt' in Germany at least from the perspective of non-executive employees.
Volume (Year): 12 (2009)
Issue (Month): 4 (Spring)
|Contact details of provider:|| Postal: |
Web page: http://bschool.pepperdine.edu/jef
More information through EDIRC
References listed on IDEAS
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
- Rangarajan K. Sundaram, 2005. "On Rescissions in Executive Stock Options," The Journal of Business, University of Chicago Press, vol. 78(5), pages 1809-1836, September.
- Jensen, Michael C. & Meckling, William H., 1976. "Theory of the firm: Managerial behavior, agency costs and ownership structure," Journal of Financial Economics, Elsevier, vol. 3(4), pages 305-360, October.
- Heron, Randall A. & Lie, Erik, 2007. "Does backdating explain the stock price pattern around executive stock option grants?," Journal of Financial Economics, Elsevier, vol. 83(2), pages 271-295, February.
- Nohel, Tom & Todd, Steven, 2005. "Compensation for managers with career concerns: the role of stock options in optimal contracts," Journal of Corporate Finance, Elsevier, vol. 11(1-2), pages 229-251, March.
- Erik Lie, 2005. "On the Timing of CEO Stock Option Awards," Management Science, INFORMS, vol. 51(5), pages 802-812, May.
- John D. Lyon & Brad M. Barber & Chih-Ling Tsai, 1999. "Improved Methods for Tests of Long-Run Abnormal Stock Returns," Journal of Finance, American Finance Association, vol. 54(1), pages 165-201, 02.
- Lisa Meulbroek, 2001. "The Efficiency of Equity-Linked Compensation: Understanding the Full Cost of Awarding Executive Stock Options," Financial Management, Financial Management Association, vol. 30(2), Summer.
- Kedia, Simi & Rajgopal, Shiva, 2009. "Neighborhood matters: The impact of location on broad based stock option plans," Journal of Financial Economics, Elsevier, vol. 92(1), pages 109-127, April.
- David Yermack, 1996.
"Good Timing: CEO Stock Option Awards and Company News Announcements,"
New York University, Leonard N. Stern School Finance Department Working Paper Seires
96-41, New York University, Leonard N. Stern School of Business-.
- Yermack, David, 1997. " Good Timing: CEO Stock Option Awards and Company News Announcements," Journal of Finance, American Finance Association, vol. 52(2), pages 449-76, June.
- Josh Lerner & Julie Wulf, 2007.
"Innovation and Incentives: Evidence from Corporate R&D,"
The Review of Economics and Statistics,
MIT Press, vol. 89(4), pages 634-644, November.
- Josh Lerner & Julie Wulf, 2006. "Innovation and Incentives: Evidence from Corporate R&D," NBER Working Papers 11944, National Bureau of Economic Research, Inc.
- Murphy, Kevin J., 2003. "Stock-based pay in new economy firms," Journal of Accounting and Economics, Elsevier, vol. 34(1-3), pages 129-147, January.
- 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.
- Lowry, Michelle & Murphy, Kevin J., 2007. "Executive stock options and IPO underpricing," Journal of Financial Economics, Elsevier, vol. 85(1), pages 39-65, July.
When requesting a correction, please mention this item's handle: RePEc:pep:journl:v:12:y:2009:i:4:p:1-34. See general information about how to correct material in RePEc.
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Craig Everett)
If references are entirely missing, you can add them using this form.