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Please use this identifier to cite or link to this item:
http://hdl.handle.net/2451/27844
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| Title: | Estimation of Employee Stock Option Exercise Rates |
| Authors: | Carpenter, Jennifer
Stanton, Richard
Wallace, Nancy |
| Issue Date: | 28-Jan-2009 |
| Series/Report no.: | FIN-08-020 |
| Abstract: | This paper is the first to perform a comprehensive estimation of
employee stock option exercise behavior and option cost to firms. We
develop a GMM-based methodology, robust to heteroskedasticity and
correlation across exercises, for estimating the rate of voluntary
option exercise as a function of the stock price path and of various
firm and option holder characteristics. We use it to estimate an
exercise function from a sample of 870,624 employee-option grants at 47
publicly-traded firms between 1980-2005, finding that volatility has a
counterintuitive effect, and that men exercise faster than women. We
also estimate the rate of employment termination, which determines
forfeitures, cancellations, and forced exercises. We use the estimated
exercise and termination functions in a simulation based valuation model
to analyze the effect of different firm and option holder
characteristics on option value, and show that the true value of these
options can differ substantially from values calculated using the usual
FASB approximation. |
| URI: | http://hdl.handle.net/2451/27844 |
| Appears in Collections: | Finance Working Papers
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