Employee Stock Options, Financing Constraints, and Real Investment
نویسندگان
چکیده
Exercises of employee stock options generate substantial cash inows to the rm. In our model, these cash inows are correlated with improvements in the rms investment opportunities and thus allow rms to relax nancing constraints in those states of the world where the demand for investment is high. Using a regression discontinuity approach, we estimate that rms increase investment by between $0.36 and $0.52 for each dollar of cash ow received from the exercise of stock options, and that the sensitivity of investment to these cash ows is higher in rms likely to face nancing constraints. In contrast, nancially unconstrained rms distribute the proceeds received from option exercises via stock repurchases. Babenko is with the Department of Finance, Hong Kong University of Science and Technology, Clear Water Bay, Kowloon, Hong Kong, [email protected]. Tel. +852-23587679. Lemmon is with the University of Utah, Eccles School of Business, [email protected], Tel (801) 585-5210. Tserlukevich is with the Department of Finance, Hong Kong University of Science and Technology, [email protected], Tel. +852-23588016. We thank the seminars participants at the University of Wisconsin, University of Miami, University of Utah, ANU, HKUST Symposium, NTU, UBC Winter Finance Conference, HEC Lausanne, Cornell University, Queensland University of Technology and Melbourne University. 1 USC FBE FINANCE SEMINAR presented by Michael Lemmon FRIDAY, Sept. 19, 2008 10:30 am – 12:00 pm, Room: JKP-202
منابع مشابه
Employee Stock Options, Financing Constraints, and Real Investment: Theory and Evidence
In this paper, we demonstrate the advantage of the use of broad-based stock option plans over cash compensation when the rm needs to nance both current and future investment in an environment where external nance is costly. Intuitively, the company obtains funds for investment in the current period by cutting xed wages through the issuance of stock options. The company receives additional f...
متن کاملA study of Financing Decisions and Capital Structure in Real Investment
In real investment, there is a relationship between external financing and abnormal stock returns. This study predicts a negative correlation between external financing and stock returns. The dependent variable of the research is stock returns and the independent variables are net financing and equity ratio. Also, control variables of the research includes assets growth, company’s size and comp...
متن کاملAn Investigation into the Effect of CEO’s Perceptual Biases on Investment Efficiency and Financing Constraints of the Iranian Listed Firms
Efficient market hypothesis predicts that capital markets are beset with cer-tain biases which result from wrong estimation, and negatively influence shareholders’ expectations for higher returns, which in turn affects invest-ment efficiency, financial constraints and corporate performance efficacy in competitive markets, and eventually mitigates firm value. The present study aims at examining ...
متن کاملCorporate Financing and Investment: The Firm-Level Credit Multiplier∗
We study the effect of asset liquidity (“tangibility”) on firm policies in the presence of financing constraints. We do so in a real options framework that allows for the simultaneous determination of investment and financing. In the presence of financing imperfections, firms that operate more tangible assets have larger credit capacity. By expanding the firm’s capital base, the investment proc...
متن کاملThe Effect of Investment on the Financing of Listed Companies in Tehran Stock Exchange
In the world and in our country, Iran, many researches have been done in the field of financing, but due to the importance of this issue, it needs more thought and contemplation. Therefore, this study assessed “the impact of investments on financing of companies listed on the Tehran Stock Exchange”. The statistical sample is consisted of companies listed on the Tehran Stock Exchange during a fi...
متن کامل