Valuing executive stock options with endogenous departure

Article Abstract:

The FASB is proposing new accounting rules for executive stock options (ESOs) in recognition of the differences between these and exchange-traded options stemming from vesting and portability restrictions. The proposal allows for adjustments to the Black-Scholes model, which would then dramatically reduce option values but would also disregard the significant interplay between option values and departure decisions. It is shown that ignoring the relationship between the two variables would result in a significant undervaluation of ESOs.

Research, Stock options, Valuation, Employee stock options

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How much are differences in managerial ability worth?

Article Abstract:

The value of differences in managerial ability was examined by comparing the average ability of managers who quit for a similar position in a new firm with those who die suddenly. When manager characteristics such as age and tenure were controlled, the mean abnormal returns were found to be significantly different across the two two groups. Results also suggested that differences in managerial ability can have significant effects on shareholder wealth.

Management Skills, Analysis, Management, Career development, Management techniques

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Adopting residual income-based compensation plans: do you get what you pay for?

Article Abstract:

Residual income-based compensation plans are found to be effective tools for keeping managers' interests in line with that of shareholders. Companies adopting such measures are found to increase the disposition of their assets, decrease new investments, increase payouts to shareholders through share repurchases and use assets more intensively.

Management Compensation, Compensation management

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