'The True and Fair View' of Executive Stock Option Valuation

Seppo Ikaheimo, Nuutti Kuosa and Vesa Puttonen

European Accounting Review, 2006, vol. 15, issue 3, 351-366

Abstract: We compare the market values of executive stock option (ESO) trades with their Black & Scholes (1973) model values calculated following the major accounting standards, SFAS No. 123r and IFRS2. Our results show major underpricing compared to the traditional B&S method values. This should be considered while applying SFAS No. 123r and IFRS2 for estimating fair values. Especially time to expiration has a major influence on the undervaluation suggesting that the possibility of a change in corporate structure lowers the cost of ESOs to shareholders.

Date: 2006
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DOI: 10.1080/09638180600916267

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