Why New Ventures Grant Employee-Stock-Options

Elli Kraizberg and Vassilios N. Gargalas
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Elli Kraizberg: Bar-Ilan University
Vassilios N. Gargalas: Western Connecticut State University

Journal of Entrepreneurial Finance, 2002, vol. 7, issue 2, 83-103

Abstract: As of 1998, nine percent of the shares of all firms in the US, primarily young and small ones, have been owned, essentially by about 17 million employees. The recent trend of new ventures to grant company-wide stock options plans is an alignment of the interests of management, shareholders, and non-managerial employees. This paper empirically explores the hypothesis that company-wide stock options plans primarily serve the interests of the firm?s management. This is true, whether or not, management owns a stake in the firm?s equity, though the degree of his or her motivation varies depending on the size of his/her stake in the firm?s equity. The paper unambiguously disproves the view that grants of employee stock options are meant to ease cash flow strains for small young firms.

Keywords: Venture Capital; New Venture; Startup; Stock Options; Compensation (search for similar items in EconPapers)
JEL-codes: G32 J33 M13 M52 (search for similar items in EconPapers)
Date: 2002
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