Investor perception of managerial discretion in valuing stock options: an empirical examination
Xu Wang () and
Additional contact information
Xu Wang: Saint Louis University
Review of Quantitative Finance and Accounting, 2016, vol. 47, issue 3, No 11, 733-773
Abstract Managers have significant discretion over option-pricing model input assumptions for reported stock option values in SEC filings. However, it is unclear how investors perceive such discretion. By modeling the discretionary component of employee stock option (ESO) value, we examine what determinants drive the ESO discretions and whether the discretions convey value-relevant information to investors or represents merely managerial opportunism. We find that the changes in firms’ future operating risk drive understatement of ESO values, and that the understatement of ESO value is significantly negatively associated with stock price, suggesting that the market does incorporate the information underlying this component into its valuation assessment. This result is consistent with the notion that outside investors perceive ESO discretion as a signal of estimated future operating risk.
Keywords: Value relevance; Employee stock option value; Information communication; Opportunistic manipulation (search for similar items in EconPapers)
JEL-codes: M41 G14 (search for similar items in EconPapers)
References: View references in EconPapers View complete reference list from CitEc
Citations: Track citations by RSS feed
Downloads: (external link)
http://link.springer.com/10.1007/s11156-015-0518-0 Abstract (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:kap:rqfnac:v:47:y:2016:i:3:d:10.1007_s11156-015-0518-0
Ordering information: This journal article can be ordered from
Access Statistics for this article
Review of Quantitative Finance and Accounting is currently edited by Cheng-Few Lee
More articles in Review of Quantitative Finance and Accounting from Springer
Bibliographic data for series maintained by Sonal Shukla ().