Accounting, Governance, and Broad-Based Stock Option Grants

Paul Oyer () and Scott Schaefer
Additional contact information
Scott Schaefer: Northwestern U

Research Papers from Stanford University, Graduate School of Business

Abstract: We estimate the costs of broad-based stock option programs relative to cash compensation and restricted stock grants. Using detailed data on stock-option grants to middle managers, we first compute the cost of option grants under the assumption that grants are driven solely by the difference between their accounting and economic costs. Under this assumption, the median firm in our sample incurs $0.64 in real costs in order to increase reported pre-tax net income by $1. This cost is reduced, but is still quite substantial, if accounting considerations drive firms to grant stock options when grants of restricted stock would capture similar economic benefits. Finally, we examine the possible sources of economic benefits of broad-based option programs if observed grants are more profitable than restricted stock grants. We find that the choice of options over restricted stock is consistent with firms using equity grants to attract and retain employees, but not as a means of conserving cash.

Date: 2005-03
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (1)

Downloads: (external link)
http://gsbapps.stanford.edu/researchpapers/library/RP1821R1.pdf
Our link check indicates that this URL is bad, the error code is: 500 Can't connect to gsbapps.stanford.edu:443 (certificate verify failed) (http://gsbapps.stanford.edu/researchpapers/library/RP1821R1.pdf [302 Found]--> https://gsbapps.stanford.edu/researchpapers/library/RP1821R1.pdf)

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:ecl:stabus:1821r1

Access Statistics for this paper

More papers in Research Papers from Stanford University, Graduate School of Business Contact information at EDIRC.
Bibliographic data for series maintained by ().