- What determines how top managers value their stock options?
- Number of pages
- Amsterdam: Faculteit Economie en Bedrijfskunde
- Document type
- Working paper
- Faculty of Economics and Business (FEB)
- Amsterdam Business School Research Institute (ABS-RI)
What determines how top managers value their executive stock options? We explore this question empirically by using a unique survey data set which combines subjective option valuation data with a wide set of individual-level variables. Inconsistent with the predictions of theory, individuals in our data set substantially overvalue the options they receive. Optimism and overconfidence miscalibration) measures are significantly related to option values, whilst measures of risk aversion show no relationship. When managers are very optimistic about company stock they attribute higher values to their options. This finding is consistent with the implicit assumption in Malmendier and Tate (2005, 2007) and Malmendier et al. (2007). These papers assume that managers who overestimate future stock prices value their options higher and exercise at later points. We also find that less overconfident (miscalibrated) managers put higher values on their options.
If you believe that digital publication of certain material infringes any of your rights or (privacy) interests, please let the Library know, stating your reasons. In case of a legitimate complaint, the Library will make the material inaccessible and/or remove it from the website. Please Ask the Library, or send a letter to: Library of the University of Amsterdam, Secretariat, Singel 425, 1012 WP Amsterdam, The Netherlands. You will be contacted as soon as possible.