Employee stock option plans and stock market reaction: evidence from Finland

Abstract

This paper examines whether the adoption of stock option plans results in changes in shareholders' wealth, and whether the stock market reactions to ESOP announcements could be explained by the target group of ESOP and the dilution effect. Short-horizon test methods are applied for this purpose. The sample consists of ESOP announcements of Finnish publicly quoted companies on the Helsinki Stock Exchange during the time period 1988-1998. The event study results show a slightly positive market reaction to announcements of ESOPs targeted to management and a negative market reaction in the case of ESOPs targeted to all employees. The results of regression analysis show that the ESOPs with limited dilution convey positive information to the stock market and the dilution effect has a negative impact on stock returns, especially in the case of ESOPs targeted to all employees.stock options, security market reaction,

Explaining bank market-to-book ratios: Evidence from 2006 to 2009

“…Galai and Schneller (1978) describe the positive effect from the ''potential inflow of cash due to exercising of warrants'' and the negative stock dilution effect. Ikaheimo et al (2004), find a mean dilutive stock price effect of 3.66% for 90 companies in Finland.…”

‘The True and Fair View’ of Executive Stock Option Valuation

“…We did not correct this approximation with the dilution effect of warrants, since the exercise of the option can be assumed to be anticipated by the market and the dilution is already reflected in the share price at the time ESOs are adopted (Schulz and Trautmann, 1994;Ikäheimo et al, 2004). The dilution of each ESO varies between 0.0% (Perlos 1998) and 9.6% (TietoEnator 1996).…”

The Determinants of Stock Option Compensation: Evidence from Finland

“…12 12 The resulting data are described in Ikäheimo et al (2004). We are grateful to Professor Ikäheimo for giving us access to these data. …”