Abstract
Owing to special characteristics, classic option pricing models are not well suited to the valuation of employee stock options (ESOs). This paper attempts to conduct a more general fair value estimation based on attaching performance targets to option vesting. Considering a setting that includes factors such as options that may be exercised early at employee discretion, employee exit rates and firm default risk, this paper presents a sensitivity analysis and empirical tests of option value. The results highlight the importance of considering the characteristics of ESOs in the design of performance-vested option plans so as to provide the most attractive incentives for employees.
Original language | English |
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Pages (from-to) | 429-438 |
Number of pages | 10 |
Journal | Australian Accounting Review |
Volume | 26 |
Issue number | 4 |
DOIs | |
Publication status | Published - 2016 Dec 1 |
All Science Journal Classification (ASJC) codes
- Accounting