Information Content of Employee Stock Options and Determinants Analysis
Date Issued
2004
Date
2004
Author(s)
Syu, Fu-Ciang
DOI
zh-TW
Abstract
Abstract
With the amendments of Company Law in 2001, companies can grant employee stock options. In the past, Taiwanese companies were used to adopting employee stock bonus plans to motivate future performance. It is therefore conjectured that it could be good news if companies grant employee stock options instead of employee stock bonuses because less dilution effect may occur. The main purpose of this study is to examine how investors react to the announcement of employee stock option plans. Secondly, this paper attempts to understand the determinants of adoption of employee stock option plans.
The hypothesis 1 of this study is to test if investors respond positively to announcement of employee stock options. The hypothesis 2 of this paper is to predict whether the magnitude of employee stock options is positively related to the opportunity of firms’ future growth, the importance of human capital, the extent of cash deficits faced by companies, the level of stock bonuses distributed, and payout ratio of stock dividends.
Using the data from 2001 to 2003, the empirical results show that the announcement of companies granting employee stock options has information content, which supports the hypothesis 1. If we divide samples into TSE stocks and OTC stocks further, the results show that:
（1）investors react positively to TSE stocks with higher market value and OTC stocks.
（2）investors react negatively to TSE stocks with lower market value.
With respect to the determinants of adoption of employee stock option plans, the empirical results reveal that the magnitude of employee stock options is significantly positively related to companies facing cash deficits, distributing employee stock bonuses in the past. But there is little evidence that the opportunity of firms’ future growth, the importance of human capital, and payout ratio of stock dividends can explain the magnitude of employee stock options. We also find that the main determinant of TSE companies granting employee stock options is the opportunity of firms’ future growth. Nevertheless, OTC companies are more concerned about financial conditions while making employee stock options decision.
Subjects
員工認股權證
現金壓迫
employee stock options
information content
cash deficits
Type
other
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