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 language | English |
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Pages (from-to) | 33-51 |
Number of pages | 19 |
Journal | Journal of Economics and Business |
Volume | 86 |
DOIs | |
State | Published - 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.
Funders | Funder number |
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German-Israeli Foundation for Scientific Research and Development | 2276/2010 |
Keywords
- Non-marketability discount
- Restricted stocks compensation