Article ID | Journal | Published Year | Pages | File Type |
---|---|---|---|---|
5091326 | Journal of Banking & Finance | 2005 | 25 Pages |
Abstract
Previous studies ignore the fact that employee stock options are warrants because these options have been an insignificant component of firms' capital structures. I show that this assumption is no longer correct. For example, for more than 36% of my sample firms, employee stock options represent a more significant claim on firm value than the firm's debt and preferred stock combined. Moreover, in contrast to the suggestions of previous research, I show that employee stock options are a significant claim on firms throughout the economy, including larger firms, older firms, and firms in “Old Economy” industries. Finally, I show that the presumption in prior studies that employee stock options are not warrants causes a potential misunderstanding of the risk-shifting interests of securityholders and biases the analysis of capital structure issues.
Related Topics
Social Sciences and Humanities
Economics, Econometrics and Finance
Economics and Econometrics
Authors
Allan C. Eberhart,