Employee Stock Option Exercises: An Empirical Analysis

Posted: 10 Oct 1998

See all articles by Steven J. Huddart

Steven J. Huddart

Pennsylvania State University, University Park - Department of Accounting

Mark H. Lang

University of North Carolina at Chapel Hill

Abstract

This paper describes the exercise behavior of over 50,000 employees who hold long term options on employer stock at eight corporations. Exercise is strongly associated with recent stock price movements, the market-to-strike ratio, proximity to vesting dates, time to maturity, and volatility. Much of the exercise activity occurs years before the options expire. Employees commonly sacrifice half of the Black-Scholes value by exercising before expiration. The employee's level within the company explains, in part, differences in behavior. These findings have implications for the FASB as it develops a new disclosure standard for stock compensation.

JEL Classification: G12, J33, M41

Suggested Citation

Huddart, Steven J. and Lang, Mark H., Employee Stock Option Exercises: An Empirical Analysis. Available at SSRN: https://ssrn.com/abstract=6072

Steven J. Huddart (Contact Author)

Pennsylvania State University, University Park - Department of Accounting ( email )

University Park, PA 16802-3603
United States
814-863-0448 (Phone)

HOME PAGE: http://directory.smeal.psu.edu/sjh11

Mark H. Lang

University of North Carolina at Chapel Hill ( email )

Kenan-Flagler Business School
McColl Building
Chapel Hill, NC 27599-3490
United States
919-962-1644 (Phone)
919-962-4727 (Fax)

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