Taxation and the Early Exercise of Call Options
Journal of Business Finance & Accounting, 2010, vol. 37, issue 5-6, 715-736
Prior studies of call option early exercise either ignore personal taxes or simplify the impact of taxation. When making an early exercise decision, the option holder should compare the after-tax cash flows from exercise with the after-tax cash flows from selling the option. Due to the differential taxation of option and share transactions, it is possible for exercise to be wealth-maximizing after tax even when it would not be the rational decision on a before-tax basis. By incorporating personal taxes on the option, underlying share and dividend this paper shows that tax can potentially explain a large portion of early exercise events classified as 'irrational' in previous studies. Copyright (c) 2010 Blackwell Publishing Ltd.
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (2) Track citations by RSS feed
Downloads: (external link)
http://www.blackwell-synergy.com/doi/abs/10.1111/j.1468-5957.2010.02183.x link to full text (text/html)
Access to full text is restricted to subscribers.
This item may be available elsewhere in EconPapers: Search for items with the same title.
Export reference: BibTeX
RIS (EndNote, ProCite, RefMan)
Persistent link: https://EconPapers.repec.org/RePEc:bla:jbfnac:v:37:y:2010-06:i:5-6:p:715-736
Ordering information: This journal article can be ordered from
http://www.blackwell ... bs.asp?ref=0306-686X
Access Statistics for this article
Journal of Business Finance & Accounting is currently edited by P. F. Pope, A. W. Stark and M. Walker
More articles in Journal of Business Finance & Accounting from Wiley Blackwell
Bibliographic data for series maintained by Wiley Content Delivery ().