Valuing restricted stock grants to non-executive employees

Menachem Meni Abudy, Simon Benninga

Research output: Contribution to journalArticlepeer-review

Abstract

We estimate the value of restricted stock (RS) grants to non-executive employees using a unique proprietary database by calibrating theoretical models that account for the non-marketability of securities and the potential effects of the employee's non-diversification. The calibration results predict an average discount of 30.3% on the RS grant. This discount depends on firm and industry characteristics, is significantly higher during the financial crisis and robust across time and across industries. The discount increases when the employee is undiversified because of the granted stocks. The findings contribute to the discussion on the efficiency of RS grants to non-executive employees, which became a dominant form of equity-based compensation.

Original languageEnglish
Pages (from-to)33-51
Number of pages19
JournalJournal of Economics and Business
Volume86
DOIs
StatePublished - 1 Jul 2016

Bibliographical note

Publisher Copyright:
© 2016 Elsevier Inc.

Funding

We thank the editor Wilson Tong and the anonymous referee for helpful and constructive comments. We also thank Saggi Katz, Efrat Shust, the seminar participants of the Institute for Banking and Finance at Munich University and the financial-markets seminar at Mannheim University for their helpful comments. We thank Tamir Fishman & Co. for providing the data. This research was supported by a grant from the GIF , the German – Israeli Foundation for Scientific Research and Development (2276/2010). Menachem Abudy dedicates this paper to the memory of Simon Benninga, who passed away in August 2015: a teacher, a mentor, a distinguish scholar and foremost, a dear friend.

FundersFunder number
German-Israeli Foundation for Scientific Research and Development2276/2010

    Keywords

    • Non-marketability discount
    • Restricted stocks compensation

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