TAILIEUCHUNG - Stock option plans for non-executive employees $

The listing of stock exchanges, perhaps even more than their demutualisation, has transformed their business model. Although demutualisation is claimed to have changed the ownership of stock exchanges, significant ownership stakes were often retained by previous member firms (Steil, 2002). Therefore, the fundamental governance structure of exchanges was not significantly impacted. Self-listing and the subsequent dispersion of ownership of exchanges have finally divorced their interests from those of broker dealers. As a result, exchanges started to face multiple constituencies with diverging motivations, putting a further pressure on them to satisfy multiple demands. . | ELSEVIER Journal of Financial Economics 61 2001 253-287 JOURNALOF Financial ECONOMICS locate econbase Stock option plans for non-executive employees John E. Core Wayne R. Guay The Wharton School 2400 Steinberg-Dietrich Hall University of Pennsylvania Philadelphia PA 19104-6365 USA Received 16 May 2000 accepted 21 March 2001 Abstract We examine determinants of non-executive employee stock option holdings grants and exercises for 756 firms during 1994-1997. We find that firms use greater stock option compensation when facing capital requirements and financing constraints. Our results are also consistent with firms using options to attract and retain certain types of employees as well as to create incentives to increase firm value. After controlling for economic determinants and stock returns option exercises are greater less when the firm s stock price hits 52-week highs lows which confirms in a broad sample the psychological bias documented by Heath et al. Quarterly Journal of Economics 114 1999 601-628 . 2001 Elsevier Science . All rights reserved. JEL classification G32 J33 J41 M4 Keywords Compensation and incentives Financing Employees Non-executives Stock options We gratefully acknowledge the helpful comments of Stan Baiman Phil Berger Peggy Bishop Gus DeFranco Nick Gonedes . Kothari Andy Leone Lisa Muelbrook Ram Natarajan Jun Qian Madhav Rajan Ross Watts Jerry Zimmerman an anonymous referee and seminar participants at the Massachusetts Institute of Technology Northeastern University the University of British Columbia the University of Michigan the University of Rochester the University of Wisconsin the Wharton School the 2000 American Accounting Association conference and the 2000 European Finance Association conference. We appreciate the research assistance of Irina Faykina Nazgol Ghandoosh Scott Mooney and Christine Phillips and gratefully acknowledge the financial support of the Wharton School. Corresponding author. Tel. 1-215-898-7775

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