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Understanding Employee Stock Options

Author

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  • Kapil Sharma

    (Kapil Sharma is at the ICFAI Business School, Indore, ICFAI University, 7 Jaisingh Nagar, Pipliyapala Square, Indore 452001 (M.P.). E-mail: kapils@ibsindia.org, kapshr@yahoo.com)

Abstract

This article looks into some key aspects related to employee stock options and discusses the reasons behind their widespread. It reviews stock options from a technical aspect and explores the consequences of stock option usage—investigating the impact of stock options on shareholder value—primarily earnings dilution. It also proposes hedging strategies as means of reducing this risk and discusses the concern involved while using hedging strategies.

Suggested Citation

  • Kapil Sharma, 2006. "Understanding Employee Stock Options," Global Business Review, International Management Institute, vol. 7(1), pages 77-93, February.
    • Handle: RePEc:sae:globus:v:7:y:2006:i:1:p:77-93
    DOI: 10.1177/097215090500700105
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    References listed on IDEAS

    as
    1. 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.
    2. Hall, Brian J. & Murphy, Kevin J., 2002. "Stock options for undiversified executives," Journal of Accounting and Economics, Elsevier, vol. 33(1), pages 3-42, February.
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    4. Brian J. Hall & Kevin J. Murphy, 2003. "The Trouble with Stock Options," Journal of Economic Perspectives, American Economic Association, vol. 17(3), pages 49-70, Summer.
    5. Lucian Arye Bebchuk & Jesse M. Fried, 2003. "Executive Compensation as an Agency Problem," Journal of Economic Perspectives, American Economic Association, vol. 17(3), pages 71-92, Summer.
    6. 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(4), pages 409-425, December.
    7. Core, John E. & Guay, Wayne R., 2001. "Stock option plans for non-executive employees," Journal of Financial Economics, Elsevier, vol. 61(2), pages 253-287, August.
    8. Brian J. Hall & Kevin J. Murphy, 2003. "The Trouble with Stock Options," NBER Working Papers 9784, National Bureau of Economic Research, Inc.
    9. Bebchuk, Lucian A. & Fried, Jesse M., 2003. "Executive Compensation as an Agency Problem," Berkeley Olin Program in Law & Economics, Working Paper Series qt81q3136r, Berkeley Olin Program in Law & Economics.
    10. Huddart, Steven, 1994. "Employee stock options," Journal of Accounting and Economics, Elsevier, vol. 18(2), pages 207-231, September.
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    Cited by:

    1. Zuriadah Ismail, 2016. "Assessing a Legal Framework for Malaysian Stock Option Plans," International Journal of Academic Research in Business and Social Sciences, Human Resource Management Academic Research Society, International Journal of Academic Research in Business and Social Sciences, vol. 6(11), pages 65-74, November.

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