Citations (11)



Companies' Modest Claims About the Value of CEO Stock Option Awards

David Yermack

New York University (NYU) - Stern School of Business

December 1995

NYU Working Paper No. FIN-95-034

This paper analyzes company disclosures of CEO stock option values in compliance with the SEC s regulations for reporting executive compensation data to stockholders. Companies appear to exploit the flexibility of the regulations to reduce the apparent value of managerial compensation. Companies shorten the expected lives of stock options and unilaterally apply discounts to the Black-Scholes formula. Theoretical support for these adjustments is often thin, and companies universally ignore reasons that the Black-Scholes formula might underestimate the value of executive stock options. The findings not only cast light upon how corporations value executive stock options, but also provide a means of forecasting compliance with controversial new FASB requirements for firms to disclose the compensation expense represented by executive stock options.

Number of Pages in PDF File: 36

Keywords: Executive stock options, Disclosure, Valuation

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Date posted: November 11, 2008  

Suggested Citation

Yermack, David, Companies' Modest Claims About the Value of CEO Stock Option Awards (December 1995). NYU Working Paper No. FIN-95-034. Available at SSRN: https://ssrn.com/abstract=1298798

Contact Information

David Yermack (Contact Author)
New York University (NYU) - Stern School of Business ( email )
44 West 4th Street
Suite 9-160
New York, NY 10012-1126
United States
212-998-0357 (Phone)
212-995-4220 (Fax)
HOME PAGE: http://www.stern.nyu.edu/~dyermack
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