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The option to quit: The effect of employee stock options on turnover

Author

Listed:
  • Aldatmaz, Serdar
  • Ouimet, Paige
  • Van Wesep, Edward D

Abstract

We show that in the years following a large broad-based employee stock option (BBSO) grant, employee turnover falls at the granting firm. We find evidence consistent with a causal relation by exploiting unexpected changes in the value of unvested options. A large fraction of the reduction in turnover appears to be temporary with turnover increasing in the third year following the year of the adoption of the BBSO plan. The increase three years post-grant is equal in magnitude to the cumulative decrease in turnover over the three prior years, suggesting that long-vesting BBSO plans delay, instead of prevent, turnover.

Suggested Citation

  • Aldatmaz, Serdar & Ouimet, Paige & Van Wesep, Edward D, 2018. "The option to quit: The effect of employee stock options on turnover," Journal of Financial Economics, Elsevier, vol. 127(1), pages 136-151.
    • Handle: RePEc:eee:jfinec:v:127:y:2018:i:1:p:136-151
    DOI: 10.1016/j.jfineco.2017.10.007
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    Citations

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    Cited by:

    1. Deqiu Chen & Huasheng Gao & Yujing Ma, 2021. "Human Capital-Driven Acquisition: Evidence from the Inevitable Disclosure Doctrine," Management Science, INFORMS, vol. 67(8), pages 4643-4664, August.
    2. David Tsui & Marshall Vance, 2023. "Sorting Effects of Broad-Based Equity Compensation," Management Science, INFORMS, vol. 69(7), pages 4240-4258, July.
    3. Jason Sandvik & Richard Saouma & Nathan Seegert & Christopher Stanton, 2021. "Employee Responses to Compensation Changes: Evidence from a Sales Firm," Management Science, INFORMS, vol. 67(12), pages 7687-7707, December.
    4. Hennig, Jan Christoph & Hullmann, Rieke & Rau, Holger A. & Wolff, Michael, 2021. "The hidden cost of profit sharing on participation in employee stock purchase plans," University of Göttingen Working Papers in Economics 414, University of Goettingen, Department of Economics.
    5. Sami Adwan & Alaa Alhaj-Ismail & Ranko Jelic, 2022. "Non-executive employee ownership and financial reporting quality: evidence from Europe," Review of Quantitative Finance and Accounting, Springer, vol. 59(2), pages 793-823, August.
    6. Eva Labro & James D. Omartian, 2023. "Managing Employee Retention Concerns: Evidence from U.S. Census Data," Working Papers 23-07, Center for Economic Studies, U.S. Census Bureau.
    7. Chen, Jun & King, Tao-Hsien Dolly & Wen, Min-Ming, 2020. "Non-executive ownership and private loan pricing," Journal of Corporate Finance, Elsevier, vol. 64(C).
    8. Li, Qiaoqiao & Zhang, Hong, 2021. "The causal effect of option ownership on employee performance: Empirical evidence from personnel data," Labour Economics, Elsevier, vol. 69(C).
    9. Dalenda Ben Ahmed, 2020. "Behavioral effects of employee stock ownership: French case," Asian Journal of Empirical Research, Asian Economic and Social Society, vol. 10(2), pages 53-64, February.
    10. Phua, Kenny & Tham, T. Mandy & Wei, Chishen, 2018. "Are overconfident CEOs better leaders? Evidence from stakeholder commitments," Journal of Financial Economics, Elsevier, vol. 127(3), pages 519-545.
    11. Tam Vivian W.Y. & Le Khoa N., 2018. "Power spectral and bispectral study of factors affecting employee turnover," Organization, Technology and Management in Construction, Sciendo, vol. 10(1), pages 1727-1734, June.
    12. Paresh Kumar Narayan & Dinh Hoang Bach Phan, 2023. "Do Financial Technology Firms Influence Labour Force Outcomes In Indonesian Banks?," Bulletin of Monetary Economics and Banking, Bank Indonesia, vol. 26(4), pages 587-606, November.
    13. Hennig, Jan C. & Ahrens, Carolin & Oehmichen, Jana & Wolff, Michael, 2023. "Employee stock ownership and firm exit decisions: A cross-country analysis of rank-and-file employees," Accounting, Organizations and Society, Elsevier, vol. 104(C).
    14. Zuomiao Xie & Shiqi Yuan & Jinjing Zhu & Alistair Palferman, 2023. "Dynamic value sharing based on employee contribution as a competitiveness-enhancing device," Palgrave Communications, Palgrave Macmillan, vol. 10(1), pages 1-13, December.
    15. Liu, Baohua & Zhang, Nihui & Chan, Kam C. & Chen, Yining & Qiu, Xuemei, 2024. "Executive equity incentive plans: Effective golden handcuffs?," International Review of Economics & Finance, Elsevier, vol. 91(C), pages 83-97.

    More about this item

    Keywords

    Employee stock options; Turnover;

    JEL classification:

    • J33 - Labor and Demographic Economics - - Wages, Compensation, and Labor Costs - - - Compensation Packages; Payment Methods
    • J63 - Labor and Demographic Economics - - Mobility, Unemployment, Vacancies, and Immigrant Workers - - - Turnover; Vacancies; Layoffs
    • G30 - Financial Economics - - Corporate Finance and Governance - - - General

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