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Employee stock options and future firm performance: Evidence from option repricings

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  • Aboody, David
  • Johnson, Nicole Bastian
  • Kasznik, Ron

Abstract

We investigate firms' operating performance subsequent to the repricing of executive and non-executive employee stock options. We find that, relative to non-repricers, repricing firms have a larger increase in operating income and cash flows in subsequent periods. This performance improvement is attributable to the underlying economic determinants of the decision to restore the options' incentive properties. However, only repricings of executive stock options are associated with improvement in performance; we find no such evidence for non-executive employees. Our findings suggest employee stock options provide sufficiently large incentive effects to favorably affect firms' performance, but primarily so at the executive level.

Suggested Citation

  • Aboody, David & Johnson, Nicole Bastian & Kasznik, Ron, 2010. "Employee stock options and future firm performance: Evidence from option repricings," Journal of Accounting and Economics, Elsevier, vol. 50(1), pages 74-92, May.
    • Handle: RePEc:eee:jaecon:v:50:y:2010:i:1:p:74-92
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    7. Boubaker Adel & Berrahal Amira, 2015. "The impact of stock-options on the company’s financial performance," Bulletin of Business and Economics (BBE), Research Foundation for Humanity (RFH), vol. 4(2), pages 63-72, June.
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    9. Brown, Paul J & Matolcsy, Zoltan & Wells, Peter, 2014. "Group versus individual compensation schemes for senior executives and firm performance: Some evidence based on archival data," Journal of Contemporary Accounting and Economics, Elsevier, vol. 10(2), pages 100-114.
    10. Vladimirov, Vladimir, 2021. "Financing Skilled Labor," CEPR Discussion Papers 15751, C.E.P.R. Discussion Papers.
    11. Taewoo Kim & Hyuk Shawn, 2022. "Conservative Financial Reporting and Resilience to the Financial Crisis," Sustainability, MDPI, vol. 14(14), pages 1-11, July.
    12. Wenjing Ouyang & Menghistu Sallehu, 2015. "How do Broad-Based Stock Option Grants Affect Firms' Overall Future Productivity," The International Journal of Business and Finance Research, The Institute for Business and Finance Research, vol. 9(2), pages 21-38.
    13. Leon Li & Nen-Chen Richard Hwang, 2017. "Prospect Theory and Earnings Manipulation: Examination of the Non-Uniform Relationship between Earnings Manipulation and Stock Returns Using Quantile Regression," Working Papers in Economics 17/25, University of Waikato.
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