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Please use this identifier to cite or link to this item: http://hdl.handle.net/2451/27145

Title: Companies' Modest Claims About the Value of CEO Stock Option Awards
Authors: Yermack, David
Keywords: Executive stock options
Disclosure
Valuation
Issue Date: Dec-1995
Series/Report no.: FIN-95-034
Abstract: This paper analyzes company disclosures of CEO stock option values in compliance with the SEC’s regulations for reporting executive compensation data to stockholders. Companies appear to exploit the flexibility of the regulations to reduce the apparent value of managerial compensation. Companies shorten the expected lives of stock options and unilaterally apply discounts to the Black-Scholes formula. Theoretical support for these adjustments is often thin, and companies universally ignore reasons that the Black-Scholes formula might underestimate the value of executive stock options. The findings not only cast light upon how corporations value executive stock options, but also provide a means of forecasting compliance with controversial new FASB requirements for firms to disclose the compensation expense represented by executive stock options.
URI: http://hdl.handle.net/2451/27145
Appears in Collections:Finance Working Papers

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