Journal of Banking & Finance Vol. 29 No. 10 2005
Employee stock options as warrants
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.
- DOI
- 10.1016/j.jbankfin.2004.06.039
- Volume
- 29
- Issue
- 10
- Pages
- 2409-2433
- Language
- en
- Sources
- openalex crossref bibtex:phds-export.bib