Uncertainty Avoidance and the Timing of Employee Stock Option Exercise

Posted: 26 Sep 2015 Last revised: 17 Apr 2018

See all articles by Francesco Bova

Francesco Bova

University of Toronto - Rotman School of Management

Marshall D. Vance

Virginia Tech

Date Written: September 24, 2015

Abstract

We examine the impact of the cultural norm of uncertainty avoidance on employee stock option (ESO) exercise behaviour using proprietary data from a multinational firm. We find that employees from countries with higher levels of uncertainty avoidance exercise their stock options earlier. These findings lend support to a maintained assumption in the ESO literature that employee attitudes towards uncertainty influence stock option exercise behaviours. Our findings further help to explain prior findings of cross-cultural differences in firms' compensation practices by indicating that employee responses to option-based pay and firms' consequent financial reporting costs vary as functions of employee uncertainty avoidance.

Keywords: employee stock options, option exercise, compensation, multinationals, subjective valuation, FAS 123R

JEL Classification: M40, M41, M52, J33

Suggested Citation

Bova, Francesco and Vance, Marshall D., Uncertainty Avoidance and the Timing of Employee Stock Option Exercise (September 24, 2015). Rotman School of Management Working Paper No. 2665455. Available at SSRN: https://ssrn.com/abstract=2665455 or http://dx.doi.org/10.2139/ssrn.2665455

Francesco Bova (Contact Author)

University of Toronto - Rotman School of Management ( email )

105 St. George Street
Toronto, Ontario M5S 3E6 M5S1S4
Canada
416-978-3985 (Phone)

Marshall D. Vance

Virginia Tech ( email )

Blacksburg, VA 24061
United States

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