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'The True and Fair View' of Executive Stock Option Valuation

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  • Seppo Ikaheimo
  • Nuutti Kuosa
  • Vesa Puttonen

Abstract

We compare the market values of executive stock option (ESO) trades with their Black & Scholes (1973) model values calculated following the major accounting standards, SFAS No. 123r and IFRS2. Our results show major underpricing compared to the traditional B&S method values. This should be considered while applying SFAS No. 123r and IFRS2 for estimating fair values. Especially time to expiration has a major influence on the undervaluation suggesting that the possibility of a change in corporate structure lowers the cost of ESOs to shareholders.

Suggested Citation

  • Seppo Ikaheimo & Nuutti Kuosa & Vesa Puttonen, 2006. "'The True and Fair View' of Executive Stock Option Valuation," European Accounting Review, Taylor & Francis Journals, vol. 15(3), pages 351-366.
  • Handle: RePEc:taf:euract:v:15:y:2006:i:3:p:351-366
    DOI: 10.1080/09638180600916267
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    References listed on IDEAS

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    Cited by:

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