Stock Options and Employee Behavior


Sautner, Zacharias ; Weber, Martin


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URL: http://ub-madoc.bib.uni-mannheim.de/1074
URN: urn:nbn:de:bsz:180-madoc-10741
Dokumenttyp: Bericht
Erscheinungsjahr: 2005
Sprache der Veröffentlichung: Englisch
Einrichtung: Fakultät für Betriebswirtschaftslehre > Sonstige - Fakultät für Betriebswirtschaftslehre
MADOC-Schriftenreihe: Lehrstuhl für ABWL, Finanzwirtschaft, insb. Bankbetriebslehre (Weber) > Working Papers
Fachgebiet: 330 Wirtschaft
Fachklassifikation: JEL: M55 M52 M41 ,
Normierte Schlagwörter (SWD): Deutschland , Korrelation , Wirtschaft , Psychologie
Abstract: Employee stock options (ESOs) are a widespread and economically highly significant phenomenon, both at the company and at the employee level. Stock options are not only relevant for CEOs, but also and increasingly for managers at lower grades in a corporation. Despite its economic importance, there exists very little empirical research that examines the behavior of employees in stock option programs. Our study attempts to fill this gap by empirically studying the behavior of option holders in a distinct ESO plan. We try to answer the following questions: How do employees exercise their stock options? How do employees dispose of company stock acquired in stock option programs? What rational and behavioral factors explain differences in observed exercise behavior? We study these questions by combining two data sets. The first data set consists of detailed individual-level ESO exercise transactions of senior managers from a large German corporation (transaction data). The second data set is based on an extensive questionnaire in which we asked these employees to answer a wide range of questions on employee-specific characteristics, beliefs and attitudes (questionnaire data). We find that employees exercise their options very early and in a few large transactions. A large majority of option recipients sell the shares acquired on exercise. Furthermore, our results suggest that, inconsistent with traditional ESO theories, exercise behavior is not driven by factors like risk aversion or individuals' holdings of company stock that are included in rational models of exercise. Our findings suggest that individuals' exercise decisions depend on the psychological factors miscalibration and mental accounting.
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