Employee stock options

Research output: Contribution to journalArticle

140 Citations (Scopus)

Abstract

This paper examines the valuation of employee stock options (ESOs). Because ESOs are inalienable, the employee's optimal exercise policy differs from the policy a naive reading of the finance literature would suggest. The employee prefers to exercise options before maturity under certain conditions on risk aversion, investment opportunities, and wealth. Since the ESOs' cost to the employer depends on the employee's exercise policy, this finding has implications for changes to the accounting treatment of ESOs under this finding has implications for changes to the accounting treatment of ESOs under consideration by the Financial Accounting Standards Board. Numerical examples suggest the employer's cost is much less than the options' Black-Scholes value.

Original languageEnglish (US)
Pages (from-to)207-231
Number of pages25
JournalJournal of Accounting and Economics
Volume18
Issue number2
DOIs
StatePublished - Jan 1 1994

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Employee stock options
Employees
Exercise
Costs
Employers
Investment opportunities
Risk aversion
Black-Scholes
Financial accounting standards
Maturity
Finance
Wealth

All Science Journal Classification (ASJC) codes

  • Accounting
  • Finance
  • Economics and Econometrics

Cite this

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Employee stock options. / Huddart, Steven J.

In: Journal of Accounting and Economics, Vol. 18, No. 2, 01.01.1994, p. 207-231.

Research output: Contribution to journalArticle

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