Employee Share Option Grant Size and Stock Prices

The research literature on employee share options (ESOs) concentrated in recent years on several major issues: expensing, valuation, incentive alignment, value relevance and taxation. It also considered the capital structure and payout policy aspects of stock option plans, as well as their correlation with the business opportunities of ESO issuers. The option expensing debate culminated in 2004, when the new accounting standards were proposed by both IASB and FASB. The valuation procedures recommended by the accounting authorities focused on the complex contractual features of ESOs, in contrast to the methods proposed in the academic literature, which took into account the ESO holder portfolio and risk aversion aspects as well as the dilution effect of options. The agency theoretic papers examined in turn the incentive characteristics of these contracts. In addition, the taxation issues related to both the issuer and the holder of these instruments were investigated. In this research note a few observations on the timing aspects of ESO grants are presented. First, several recent papers on the subject are briefly reviewed, and then a small ESO dataset is explored. In conclusion some topics for further investigation are proposed.