Employee and executive stock option’s impact on the issuing company’s stock price when they vest.
Jäske, Tommi (2005)
Kuvaus
Kokotekstiversiota ei ole saatavissa.
Tiivistelmä
Companies grant options for their executives and employees. The holders cannot sell or execute their options prior to the time when they vest. The thesis studies the stock mar-kets reaction to the vesting event with event study methodology.
Possible reasons for a reaction in the share price are hedging related short sales of the underlying shares and shares sold after delivery due to an execution. In addition, the options are to dilute the company value and share price due to creation of new shares without adequate addition in the company value. The market is aware of the event and if informationally efficient in the semi-strong sense, the prices should already reflect the information content of the event.
The data consists of 229 non-clustered vesting events in the Helsinki stock exchange on 151 option granting and listed companies under the period of 1994–2002 and of Hel-sinki stock exchange daily stock prices. Cash dividends paid to share holders are added to the return time-series and due to imputation system, the tax credit is added on top of the dividend. This figure is multiplied by the domestic ownership ratio since foreign shareholders are not entitled to receive the tax benefit and because foreign ownership has risen to substantial levels under the studied period.
The abnormal returns calculated by three different methods do not show statistically significant and consistent reaction. In addition, the standard deviation of the share return is not found to change after adjusting for market wide volatility changes.
Possible reasons for a reaction in the share price are hedging related short sales of the underlying shares and shares sold after delivery due to an execution. In addition, the options are to dilute the company value and share price due to creation of new shares without adequate addition in the company value. The market is aware of the event and if informationally efficient in the semi-strong sense, the prices should already reflect the information content of the event.
The data consists of 229 non-clustered vesting events in the Helsinki stock exchange on 151 option granting and listed companies under the period of 1994–2002 and of Hel-sinki stock exchange daily stock prices. Cash dividends paid to share holders are added to the return time-series and due to imputation system, the tax credit is added on top of the dividend. This figure is multiplied by the domestic ownership ratio since foreign shareholders are not entitled to receive the tax benefit and because foreign ownership has risen to substantial levels under the studied period.
The abnormal returns calculated by three different methods do not show statistically significant and consistent reaction. In addition, the standard deviation of the share return is not found to change after adjusting for market wide volatility changes.