Using Auctions to Price Employee Stock Options: The Case of Zions Bancorporation ESOARS

Posted: 20 Dec 2009

See all articles by Sumon C. Mazumdar

Sumon C. Mazumdar

Law and Economics Consulting Group (LECG), LLC; University of California, Berkeley - Haas School of Business

Vikram K. Nanda

University of Texas at Dallas - School of Management - Department of Finance & Managerial Economics

Rahul Surana

Law and Economics Consulting Group (LECG), Inc.

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Date Written: December 15, 2009

Abstract

The first empirical analysis of Zions Bancorporation’s 2006 and 2007 auctions of Employee Stock Option Appreciation Rights Securities (ESOARS), this study examined (1) the impact of auction rules on bidding strategies and allocations, (2) the efficiency of the auction clearing prices, and (3) the “value gap” between ESOARS auction clearing prices and various model-based estimates. It found that the design features of the auctions (e.g., ending rules) significantly affected bidding strategies but not final allocations, which remained highly concentrated. It also found that the clearing prices (1) displayed high price elasticities of demand, suggesting efficient price discovery, and (2) were low relative to some, but not all, model-based estimates. These findings suggest design improvements that might benefit auctions of other illiquid derivatives (e.g., banks’ “troubled assets”) currently being considered by the U.S. government.

Keywords: Advocacy, Regulatory, and Legislative Issues, Regulatory and Legislative Activities, Equity Investments, Fundamental Analysis and Valuation Models

Suggested Citation

Mazumdar, Sumon C. and Nanda, Vikram K. and Surana, Rahul, Using Auctions to Price Employee Stock Options: The Case of Zions Bancorporation ESOARS (December 15, 2009). Financial Analysts Journal, Vol. 65, No. 6, 2009, Available at SSRN: https://ssrn.com/abstract=1523740

Sumon C. Mazumdar (Contact Author)

Law and Economics Consulting Group (LECG), LLC ( email )

2000 Powell Street, Suite 600
Emeryville, CA 94608
United States
510-450-5493 (Phone)

University of California, Berkeley - Haas School of Business

Finance Department
Berkeley, CA 94720
United States

Vikram K. Nanda

University of Texas at Dallas - School of Management - Department of Finance & Managerial Economics ( email )

2601 North Floyd Road
P.O. Box 830688
Richardson, TX 75083
United States

Rahul Surana

Law and Economics Consulting Group (LECG), Inc. ( email )

Suite 600
2000 Powell Street
Emeryville, CA 94608
United States

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