Title: | On Rescissions in Executive Stock Options |
Authors: | Brenner, Menachem Sundaram, Rangarajan K. Yermack, David |
Issue Date: | 15-Apr-2002 |
Series/Report no.: | FIN-02-014 |
Abstract: | We study executive stock options that permit the option holder to rescind an exercise decision, returning the shares acquired to the company and obtaining a refund of the exercise price. Rescissions accurred at a number of U.S. companies in 2000 after the large decline in internet stocks, and have been widely condemned as a weakening of incentives. To the contrary, we find that in many situations rescinable options dominate ordinary option by delivering greater value and stronger incentives to the employee at a lower cost to the firm. The attractiveness of rescinable option arises as a consequence of the income tax treatment of most executive stock option in the U.S. |
URI: | http://hdl.handle.net/2451/26458 |
Appears in Collections: | Finance Working Papers |
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