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Why New Ventures Grant Employee-Stock-Options

  • Elli Kraizberg

    (Bar-Ilan University)

  • Vassilios N. Gargalas

    (Western Connecticut State University)

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    As of 1998, nine percent of the shares of all firms in the US, primarily young and small ones, have been owned, essentially by about 17 million employees. The recent trend of new ventures to grant company-wide stock options plans is an alignment of the interests of management, shareholders, and non-managerial employees. This paper empirically explores the hypothesis that company-wide stock options plans primarily serve the interests of the firm?s management. This is true, whether or not, management owns a stake in the firm?s equity, though the degree of his or her motivation varies depending on the size of his/her stake in the firm?s equity. The paper unambiguously disproves the view that grants of employee stock options are meant to ease cash flow strains for small young firms.

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    File URL: http://jefsite.org/RePEc/pep/journl/jef-2002-07-2-g-kraizberg.pdf
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    Article provided by Pepperdine University, Graziadio School of Business and Management in its journal Journal of Entrepreneurial Finance and Business Ventures.

    Volume (Year): 7 (2002)
    Issue (Month): 2 (Summer)
    Pages: 83-103

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    Handle: RePEc:pep:journl:v:7:y:2002:i:2:p:83-103
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    Web page: http://bschool.pepperdine.edu/jef

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    1. Lambert, Richard A. & Lanen, William N. & Larcker, David F., 1989. "Executive Stock Option Plans and Corporate Dividend Policy," Journal of Financial and Quantitative Analysis, Cambridge University Press, vol. 24(04), pages 409-425, December.
    2. Huddart, Steven, 1994. "Employee stock options," Journal of Accounting and Economics, Elsevier, vol. 18(2), pages 207-231, September.
    3. Cuny, Charles J. & Jorion, Philippe, 1995. "Valuing executive stock options with endogenous departure," Journal of Accounting and Economics, Elsevier, vol. 20(2), pages 193-205, September.
    4. Ben-Ner, Avner & Jun, Byoung, 1996. "Employee Buyout in a Bargaining Game with Asymmetric Information," American Economic Review, American Economic Association, vol. 86(3), pages 502-23, June.
    5. Rajesh Aggarwal & Andrew A. Samwick, 1996. "Executive Compensation, Strategic Competition, and Relative Performance Evaluation: Theory and Evidence," NBER Working Papers 5648, National Bureau of Economic Research, Inc.
    6. Hemmer, Thomas, 1993. "Risk-free incentive contracts : Eliminating agency cost using option-based compensation schemes," Journal of Accounting and Economics, Elsevier, vol. 16(4), pages 447-473, October.
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