Using Auctions to Price Employee Stock Options: The Case of Zions Bancorporation ESOARS
Posted: 20 Dec 2009
Date Written: December 15, 2009
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
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