Uncertainty Avoidance and the Timing of Employee Stock Option Exercise
Posted: 26 Sep 2015 Last revised: 17 Apr 2018
Date Written: September 24, 2015
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
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