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| Author: | Maris, B. A. Maris, J.-M. Yang, T. T. |
| Title: | The Effect of Exercise Date Uncertainty on Employee Stock Option Value |
| Journal: | Journal of Business Finance and Accounting
2003 : JUN/JUL, VOL. 30:5-6, p. 669-698 |
| Index terms: | SHARE INCENTIVE SCHEMES VALUATION PROMOTION STOCK OPTIONS |
| Language: | eng |
| Abstract: | This study assumes that option life follows a Gamma distribution, allowing the variance of option life to be separate from its expected life. The results indicate the adjusted Black-Scholes model could overvalue employee stock options on the grant date by as much as 72 percent for nondividend paying films and by as much as 84 percent for dividend paying firms. The results further demonstrate the sensitivity of ESO values to the volatility of the expected option life, a parameter that the B-S model or a Poisson process cannot accommodate. The variability of option life has an especially big impact on ESO value for firms whose ESOs have a relatively short life (5 years, for example) and high employee turnover. |
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