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What determines early exercise of employee stock options in Australia?
Author(s) -
Boyd Tristan,
Brown Philip,
Szimayer Alex
Publication year - 2007
Publication title -
accounting and finance
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 0.645
H-Index - 49
eISSN - 1467-629X
pISSN - 0810-5391
DOI - 10.1111/j.1467-629x.2007.00211.x
Subject(s) - valuation (finance) , dividend , stock options , business , stock (firearms) , accounting , maturity (psychological) , finance , psychology , engineering , mechanical engineering , developmental psychology
Employee stock options (ESOs) are a popular way of remunerating employees. We analyse factors at the firm and option level affecting the employee's decision to exercise ESOs before they mature. Exercises over the period 1998–2004 are analysed and the key factor influencing early exercise is found to be dividends. Exercises frequently occur well before maturity, but in most cases little time value is sacrificed. Our findings have implications for the ‘fair’ valuation of ESOs in companies’ financial statements, as required by the relevant Australian accounting standard, AASB 2.