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Are Employee Stock Option Exercise Decisions Better Explained through the Prospect Theory?

hal.structure.identifierDauphine Recherches en Management [DRM]
dc.contributor.authorBahaji, Hamza*
dc.date.accessioned2014-04-14T14:25:40Z
dc.date.available2014-04-14T14:25:40Z
dc.date.issued2014-03
dc.identifier.urihttps://basepub.dauphine.fr/handle/123456789/13098
dc.language.isoenen
dc.subjectStock-optionsen
dc.subjectExercise behavioren
dc.subjectCumulative Prospect Theoryen
dc.subjectFair valueen
dc.subjectOption valuationen
dc.subject.ddc332en
dc.subject.classificationjelG.G1.G13en
dc.subject.classificationjelG.G3.G30en
dc.subject.classificationjelJ.J3.J33en
dc.subject.classificationjelM.M4.M41en
dc.titleAre Employee Stock Option Exercise Decisions Better Explained through the Prospect Theory?en
dc.typeCommunication / Conférence
dc.description.abstractenThis research provides an alternative framework for the analysis of employee stock option exercise patterns. It develops a binomial model where the exercise decision obeys to a policy that maximizes the expected utility to a representative employee exhibiting preferences as described by the Cumulative Prospect Theory (CPT). Using a large database on exercise transactions in 12 US public corporations, I examined the performance of the model in predicting actual exercise patterns. Interestingly, the probability weighting coefficients yielded by the model calibration are consistent with those from the experimental literature. Further, the results suggest that the model outperforms the Expected Utility Theory-based model in predicting actual exercise decisions in the sample. These findings convey the main contribution of this paper: the strong ability of the CPT framework to explain employees exercise behavior. It therefore provides rationale for using this framework in order to get more relevant fair value estimates of stock options.en
dc.identifier.citationpages37 p.en
dc.subject.ddclabelEconomie financièreen
dc.relation.conftitle63rd Annual Meeting of the Midwest Finance Association - MFA 2014 Annual Meetingen
dc.relation.confdate2014-03
dc.relation.confcityOrlando, FLen
dc.relation.confcountryUnited Statesen
dc.relation.forthcomingnonen
dc.description.halcandidateoui
dc.description.readershipRecherche
dc.description.audienceInternational
dc.relation.Isversionofjnlpeerreviewednon
hal.identifierhal-01505359*
hal.version1*
hal.update.actionupdateMetadata*
hal.author.functionaut


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