Taxation and the value of employee stock options-Reference-Cited by-同舟云学术

Taxation and the value of employee stock options

Published:2011-02-22 Issue:1 Volume:7 Page:9-37
ISSN:1743-9132
Container-title:International Journal of Managerial Finance
language:en
Short-container-title:

Author:

Abudy Menachem,Benninga Simon

Abstract

PurposeThis paper aims to derive firm value implications for various kinds of employee stock options (ESOs) in a framework that considers uncertainty, non‐diversification and the US statutory tax treatment.Design/methodology/approachThe authors extend the analysis of ESOs from the case of perfect capital markets to two cases of imperfect capital markets using the Benninga‐Helmantel‐Sarig framework.FindingsIt is found that ESOs are inferior to cash compensation and that the degree of option inferiority depends on employee diversification. In addition, incentive stock options (ISOs) are generally inferior to non‐qualified stock options (NSOs). This relative profitability of the NSO versus ISO increases as market imperfections are added. The authors also find that in general firm hedging of ESOs is suboptimal.Originality/valueThe paper highlights the firm value of employee stock options.

Publisher

Emerald

Subject

Finance,Business, Management and Accounting (miscellaneous)

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