How Employee Stock Options and Executive Equity Ownership Enhance Long-term IPO Performance
نویسندگان
چکیده
This paper examines the longer-term performance of IPOs from the expiration of the stabilization period to three years after the IPO. It seeks to determine whether employee stock options (ESOs) affect long-term market-adjusted performance after controlling for other influential factors previously uncovered in the IPO and compensation literature, such as executive cash compensation, profitability, age, size, venture capital backing, underwriter ranking, industry, book-to-market, analyst growth forecasts, and underpricing. We find that new public companies granting extensive ESOs outperform companies granting few ESOs for two years after the IPO. In addition, among IPOs with extensive ESOs, IPOs with high executive equity ownership outperform IPOs with low executive equity ownership. We offer a theoretical explanation for these results based on managerial risk aversion and compensation arrangements. JEL Classification: G12; G32; J33
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