Author： Ikäheimo Seppo Kuosa Nuutti Puttonen Vesa
Publisher： Routledge Ltd
ISSN： 1468-4497
Source： European Accounting Review, Vol.15, Iss.3, 2006-09, pp. : 351-366
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Abstract
We compare the market values of executive stock option (ESO) trades with their Black & Scholes (1973) model values calculated following the major accounting standards, SFAS No. 123r and IFRS2. Our results show major underpricing compared to the traditional B&S method values. This should be considered while applying SFAS No. 123r and IFRS2 for estimating fair values. Especially time to expiration has a major influence on the undervaluation suggesting that the possibility of a change in corporate structure lowers the cost of ESOs to shareholders.
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