What Determines How Top Managers Value their Stock Options?

Sautner, Zacharias ; Weber, Martin

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URL: http://ub-madoc.bib.uni-mannheim.de/1773
URN: urn:nbn:de:bsz:180-madoc-17731
Document Type: Working paper
Year of publication: 2007
The title of a journal, publication series: None
Publication language: English
Institution: Business School > Sonstige - Fakultät für Betriebswirtschaftslehre
MADOC publication series: Lehrstuhl für ABWL, Finanzwirtschaft, insb. Bankbetriebslehre (Weber) > Working Papers
Subject: 330 Economics
Classification: JEL: G39 M55 M52 M41 ,
Subject headings (SWD): Aktienoptionsplan , Anlageverhalten , Aktienbewertung , Topmanagement
Keywords (English): Executive Stock Options , Subjective Option Values
Abstract: 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.
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