Employee Stock Options and Equity Valuation

Research Foundation of CFA Monograph, 2004

Posted: 15 Apr 2005

See all articles by Mark H. Lang

Mark H. Lang

University of North Carolina at Chapel Hill

Abstract

Employee stock options have become a large component of compensation for many companies, especially those in which human capital forms a large portion of company assets. In this monograph, I address how to value the equity of companies that grant employee options. I discuss prior research on employee stock options, focusing on the implications for a discounted cash flow model that begins with free cash flow, and introduces costs associated with current and future options as well as the incentive benefits of granting options.

Keywords: Employee stock options, valuation

JEL Classification: G12, G32, M41, J33

Suggested Citation

Lang, Mark H., Employee Stock Options and Equity Valuation. Research Foundation of CFA Monograph, 2004. Available at SSRN: https://ssrn.com/abstract=688452

Mark H. Lang (Contact Author)

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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