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Dividends
Kinds of Dividends Terms modified by Dividends Selected AbstractsDISAPPEARING DIVIDENDS: CHANGING FIRM CHARACTERISTICS OR LOWER PROPENSITY TO PAY?JOURNAL OF APPLIED CORPORATE FINANCE, Issue 1 2001Eugene F. Fama The proportion of U.S. firms paying dividends drops sharply during the 1980s and 1990s. Among NYSE, AMEX, and Nasdaq firms, the proportion of dividend payers falls from 66.5% in 1978 to only 20.8% in 1999. The decline is due in part to an avalanche of new listings that tilts the population of publicly traded firms toward small firms with low profitability and strong growth opportunities,the timeworn characteristics of firms that typically do not pay dividends. But this is not the whole story. The authors' more striking finding is that, no matter what their characteristics, firms in general have become less likely to pay dividends. The authors use two different methods to disentangle the effects of changing firm characteristics and changing propensity to pay on the percent of dividend payers. They find that, of the total decline in the proportion of dividend payers since 1978, roughly one-third is due to the changing characteristics of publicly traded firms and two-thirds is due to a reduced propensity to pay dividends. This lower propensity to pay is quite general,dividends have become less common among even large, profitable firms. Share repurchases jump in the 1980s, and the authors investigate whether repurchases contribute to the declining incidence of dividend payments. It turns out that repurchases are mainly the province of dividend payers, thus leaving the decline in the percent of payers largely unexplained. Instead, the primary effect of repurchases is to increase the already high payouts of cash dividend payers. [source] A FURTHER EXAMINATION OF THE PRICE AND VOLATILITY IMPACT OF STOCK DIVIDENDS AT EX-DATES,AUSTRALIAN ECONOMIC PAPERS, Issue 3 2005BALASINGHAM BALACHANDRAN We examine the price and volatility reaction around stock dividend ex-dates for an Australian sample, over the period January 1992 to December 2000. We find that price reaction around stock dividend ex-dates provides positive abnormal returns both prior, and subsequent, to the abolishment of par value of shares in July 1998. When we partitioned the sample into financial, industrial non-financial and mining firms, the price reaction is found to be positive and significant only for industrial non-financial companies. Volatility of daily returns for periods subsequent to ex-dates is significantly greater than corresponding periods prior to announcement dates, while cumulative raw returns subsequent to ex-dates are significantly lower than periods prior to announcement dates for industrial non-financial companies. The magnitude of the price reaction is statistically significantly related to an increase in the volatility of daily returns and to a reduction in cumulative raw returns subsequent to the ex-dates, for industrial non-financial companies. These findings support buying pressure hypothesis suggested by Dhatt et al. (1994, 1996). [source] Civil Society Development Versus the Peace Dividend: International Aid in the WanniDISASTERS, Issue 1 2005Vance Culbert Donors that provide aid to the Wanni region of Sri Lanka, which is controlled by the Liberation Tigers of Tamil Eelam (LTTE), are promoting initiatives that seek to advance the national peace process. Under the rubric of post-conflict reconstruction, the actions of political forces and structural factors have led to the prioritisation of two different approaches to peace-building: community capacity-building projects; and support for the ,peace dividend'. Both of these approaches face challenges. Cooperation with civil society actors is extremely difficult due to intimidation by the LTTE political authority and the authoritarian nature of its control. Peace-building successes with respect to the peace dividend are difficult to measure, and must be balanced against the negative effects of misdirected funds. Aid organisations must be careful not to consider the tasks of peacebuilding, humanitarian relief and community empowerment as either interchangeable or as mutually reinforcing endeavours. [source] Accession's Democracy Dividend: The Impact of the EU Enlargement upon Democracy in the New Member States of Central and Eastern EuropeEUROPEAN LAW JOURNAL, Issue 4 2004Wojciech Sadurski The purpose of this article is to examine this claim, that accession will provide a ,democracy dividend' in this fashion. To this end, the article begins by examining the political conditionality of the accession process, and the extent to which the process of democratisation can be understood as a result of ,external' pressures. It also discusses the extent to which the effectiveness of political conditionality is likely to survive after the accession takes place. The article then moves on to consider the effects of accession upon democracy in the states of the region by looking in detail at three areas that have been particularly important: the role of national parliaments, the new constitutional courts, and the tendency towards decentralisation and regionalism. The article concludes by noting that, although not all of the developments discussed are necessarily good for democracy in the region, the real dividend coming from the accession process lies in the fact that, on a macro-level, membership in the EU will make the democratic transition in Central and Eastern Europe practically irreversible. [source] Share Repurchases, Dividends and Executive Options: the Effect of Dividend ProtectionEUROPEAN FINANCIAL MANAGEMENT, Issue 1 2006Eva Liljeblom G12; G32; G35 Abstract We study the determinants of share repurchases and dividends in Finland. We find that higher foreign ownership serves as a determinant of share repurchases and suggest that this is explained by the different tax treatment of foreign and domestic investors. Further, we also find support for the signalling and agency cost hypotheses for cash distributions. The fact that 41% of the option programmes in our sample are dividend protected allows us to test more directly the ,substitution/managerial wealth' hypothesis for the choice of distribution method. When options are dividend protected, the relationship between dividend distributions and the scope of the options programme turns to a significantly positive one instead of the negative one documented in US data. [source] Prior Payment Status and the Likelihood to Pay Dividends: International EvidenceFINANCIAL REVIEW, Issue 3 2010Mia Twu G32; G35 Abstract By using the signaling model and the life-cycle theory, I examine the importance of prior payment status in determining the likelihood to pay dividends. I categorize firms into those that paid dividends previously and those that did not. My results show that strong dividend stickiness exists and the determinants to pay differ significantly for the two groups of firms. High growth and low insider holdings make prior payers more likely to pay but prior nonpayers less likely to pay. Furthermore, prior payers are more sensitive to profitability and earned/contributed equity mix, while prior nonpayers are more sensitive to risk and dividend premiums. Finally, taking the prior payment status into account eliminates the problem of overestimating the portion of payers put forth by previous studies. [source] Signaling, Free Cash Flow and "Nonmonotonic" DividendsFINANCIAL REVIEW, Issue 1 2010Kathleen Fuller G35 Abstract Many argue that dividends signal future earnings or dispose of excess cash. Empirical support is inconclusive, potentially because no model combines both rationales. This paper does. Higher quality firms pay dividends to eliminate the free cash-flow problem, while firms that outsiders perceive as lower quality pay dividends to signal future earnings and reduce the free cash-flow problem. In equilibrium, dividends are nonmonotonic with respect to the signal observed by outsiders; the highest quality firms pay smaller dividends than lower perceived quality firms. The model reconciles the existing literature and generates new empirical predictions that are tested and supported. [source] Price and Volume Behavior around the Ex-dividend Day: Evidence on the Value of Dividends from American Depositary Receipts and their Underlying Australian Stocks,INTERNATIONAL REVIEW OF FINANCE, Issue 1-2 2008AELEE JUN ABSTRACT Australian residents are tax-advantaged, relative to American investors, in their access to imputation tax credits on Australian stocks. This paper provides evidence consistent with a difference in dividend valuations between Australian stocks and their American Depositary Receipts (ADRs). The ex-dividend drop-off ratio is lower for ADRs relative to their underlying Australian stocks and this difference is most pronounced for stocks that have imputation tax credits and high dividend yields. Consistent with dividend capture trading in the Australian market, the difference in drop-off ratios is driven by both temporarily higher Australian cum-prices and temporarily lower Australian ex-prices. Abnormal trading volume about the ex-day is present in both markets and in the Australian market the abnormal volume is greater for dividends with imputation tax credits. Dividend-related trading leads to price differences across the markets on the ex-dividend day. Price differences are also observed when the stock and the ADR trade with different dividend entitlements due to different ex-dividend dates. [source] Deflators, Net Shareholder Cash Flows, Dividends, Capital Contributions and Estimated Models of Corporate ValuationJOURNAL OF BUSINESS FINANCE & ACCOUNTING, Issue 9-10 2003Saeed Akbar First page of article [source] The Information Signaling Hypothesis of Dividends: Evidence from Cointegration and Causality TestsJOURNAL OF BUSINESS FINANCE & ACCOUNTING, Issue 3-4 2003Mbodja Mougoué This paper uses cointegration and causality tests to study the temporal behavior of dividends and earnings at the individual firm level. We find that, for a sample of 143 non-utility firms, approximately one-fifth of the firms exhibits a temporal relationship between dividends and earnings that is consistent with the information signaling hypothesis of dividends. In the case of 72 utilities, about a third exhibit dividend policies that are consistent with the signaling notion of dividends. Further examination of firm characteristic differences between signaling and non-signaling firms shows that, in the case of non-utility firms, signaling firms tend to be smaller, have a lower growth rate of total assets, and have a higher leverage ratio. In the case of utilities, we find no major differences in firm characteristics between signaling and non-signaling firms. [source] Winners and Losers in the Middle East: The Economics of "Peace Dividends"MIDDLE EAST POLICY, Issue 3 2002Ali F. Darrat [source] Fungibility: Florida Seminole Casino Dividends and the Fiscal Politics of IndigeneityAMERICAN ANTHROPOLOGIST, Issue 2 2009Jessica R. Cattelino ABSTRACT In this article, I examine Florida Seminoles' governmental distributions of tribal-gaming revenues that take the form of per capita dividends. Dividends reveal the political and cultural stakes of money's fungibility,its ability to substitute for itself. From tribal policy debates over children's dividends to the legitimization of political leadership through monetary redistribution, Seminoles selectively exploit the fungibility of money to break or make ties with one another and with non-Seminoles. They do so in ways that reinforce indigenous political authority and autonomy, and they thereby challenge structural expectations in U.S. public culture and policy that would oppose indigenous distinctiveness to the embrace of money. [Keywords: money, tribal gaming, American Indians, Florida Seminoles] [source] Dividends, Share Repurchases, and the Substitution HypothesisTHE JOURNAL OF FINANCE, Issue 4 2002Gustavo Grullon We show that repurchases have not only became an important form of payout for U.S. corporations, but also that firms finance their share repurchases with funds that otherwise would have been used to increase dividends. We find that young firms have a higher propensity to pay cash through repurchases than they did in the past and that repurchases have become the preferred form of initiating a cash payout. Although large, established firms have generally not cut their dividends, they also show a higher propensity to pay out cash through repurchases. These findings indicate that firms have gradually substituted repurchases for dividends. Our results also suggest that before 1983, regulatory constraints inhibited firms from aggressively repurchasing shares. [source] A Theory of Dividends Based on Tax ClientelesTHE JOURNAL OF FINANCE, Issue 6 2000Franklin Allen This paper explains why some firms prefer to pay dividends rather than repurchase shares. When institutional investors are relatively less taxed than individual investors, dividends induce "ownership clientele" effects. Firms paying dividends attract relatively more institutions, which have a relative advantage in detecting high firm quality and in ensuring firms are well managed. The theory is consistent with some documented regularities, specifically both the presence and stickiness of dividends, and offers novel empirical implications, e.g., a prediction that it is the tax difference between institutions and retail investors that determines dividend payments, not the absolute tax payments. [source] Dividend payments in the classical risk model under absolute ruin with debit interestAPPLIED STOCHASTIC MODELS IN BUSINESS AND INDUSTRY, Issue 3 2009Chunwei Wang Abstract This paper attempts to study the dividend payments in a compound Poisson surplus process with debit interest. Dividends are paid to the shareholders according to a barrier strategy. An alternative assumption is that business can go on after ruin, as long as it is profitable. When the surplus is negative, a debit interest is applied. At first, we obtain the integro-differential equations satisfied by the moment-generating function and moments of the discounted dividend payments and we also prove the continuous property of them at zero. Then, applying these results, we get the explicit expressions of the moment-generating function and moments of the discounted dividend payments for exponential claims. Furthermore, we discuss the optimal dividend barrier when the claim sizes have a common exponential distribution. Finally, we give the numerical examples for exponential claims and Erlang (2) claims. Copyright © 2008 John Wiley & Sons, Ltd. [source] Dividends and Directors: Do Outsiders Reduce Agency Costs?BUSINESS AND SOCIETY REVIEW, Issue 2 2005SUSAN BELDEN First page of article [source] CONVERTIBLE SECURITIES: A TOLLBOX OF FLEXIBLE FINANCIAL INSTRUMENTS FOR CORPORATE ISSUERSJOURNAL OF APPLIED CORPORATE FINANCE, Issue 1 2000Trevor Ganshaw During the 1990s, convertible and equity-linked securities emerged as a major source of financing for U.S. corporate issuers. Issuance volume grew steadily throughout the decade and the secondary market value of U.S. convertible securities now exceeds $200 billion. In this overview of the market, the authors discuss the following: (1) the growth of issuance volume in the U.S. equity-linked market; (2) the basic characteristics of convertible securities; (3) convertible debt alternatives; and (4) convertible preferred alternatives. As a result of the proliferation of new convertible structures, corporate issuers are now able to adjust coupon/dividend, conversion premium, and call protection in order to meet their tax, accounting, rating agency, and cost-of-capital objectives. Historically, the convertible new issue market has had a broad variety of issuers, spanning all industry sectors as well as both investment grade and high yield credits. But in the last two years, the most aggressive issuers have been technology-oriented companies, including telecommunications, Internet, hardware, software, and biotechnology concerns. Such technology-related issuers, which are often rated below investment grade and unable to secure straight debt capital, are generally in heavy-spending phases and view convertible bonds as a source of inexpensive financing. At the same time, investment-grade, "old-economy" issuers have continued to use convertible securities selectively, in most cases as cheap "quasi-equity" in the context of mergers and acquisitions, or as a tax-deferred strategy for selling cross-holdings of stock. [source] Corporate Investment Incentives and Accounting-Based Debt Covenants,CONTEMPORARY ACCOUNTING RESEARCH, Issue 4 2003Alan V. S. Douglas Abstract This paper studies the conditions under which accounting-based debt covenants increase firm value in a setting that incorporates the conflicting incentives of shareholders, bondholders, and managers. We construct a model in which debt is needed to discipline managerial investment decisions despite endogenous compensation contracts. We show that accounting covenants increase value when (1) debt serves as a credible commitment to penalize poor investment decisions; (2) the firm faces other (exogenous) sources of uncertainty that can make debt risky despite good investment decisions; and (3) accounting information serves as a contractible proxy for firm's economic performance. In these circumstances, accounting covenants ensure that shareholders do not offer compensation schemes that would encourage bondholder wealth expropriation when the debt becomes risky. A covenant specifying a required level of accounting performance provides additional bondholder power when performance is low. An accounting-based dividend covenant allows a disbursement to maintain investment incentives when performance is high without allowing dividend-based expropriation. The optimal covenants depend on the reliability of accounting information, and the interaction between accounting performance and the different incentive conflicts provides new insight into the empirical literature on accounting-based covenants. [source] Civil Society Development Versus the Peace Dividend: International Aid in the WanniDISASTERS, Issue 1 2005Vance Culbert Donors that provide aid to the Wanni region of Sri Lanka, which is controlled by the Liberation Tigers of Tamil Eelam (LTTE), are promoting initiatives that seek to advance the national peace process. Under the rubric of post-conflict reconstruction, the actions of political forces and structural factors have led to the prioritisation of two different approaches to peace-building: community capacity-building projects; and support for the ,peace dividend'. Both of these approaches face challenges. Cooperation with civil society actors is extremely difficult due to intimidation by the LTTE political authority and the authoritarian nature of its control. Peace-building successes with respect to the peace dividend are difficult to measure, and must be balanced against the negative effects of misdirected funds. Aid organisations must be careful not to consider the tasks of peacebuilding, humanitarian relief and community empowerment as either interchangeable or as mutually reinforcing endeavours. [source] Financial integration, capital mobility, and income convergenceECONOMIC POLICY, Issue 58 2009Abdul Abiad Summary Recent studies have found that capital moves ,uphill' from poor to rich countries, and brings little or no growth dividend when it does flow into poor economies. We show that Europe does not conform to this paradigm. In the European experience of financial integration, capital has flown from rich to poor countries, and such inflows have been associated with significant acceleration of income convergence. Analysing broader samples of countries, we find that ,downhill' capital flows tend to be observed above certain thresholds in institutional quality and financial integration. But Europe remains different even when allowing for such threshold effects, and its experience is similar to that of interstate flows within the United States. Our findings are consistent with the notion that financial diversification reduces countries' incentives to save in order to self-insure against specific shocks. ,Abdul Abiad, Daniel Leigh and Ashoka Mody [source] Share Repurchases, Dividends and Executive Options: the Effect of Dividend ProtectionEUROPEAN FINANCIAL MANAGEMENT, Issue 1 2006Eva Liljeblom G12; G32; G35 Abstract We study the determinants of share repurchases and dividends in Finland. We find that higher foreign ownership serves as a determinant of share repurchases and suggest that this is explained by the different tax treatment of foreign and domestic investors. Further, we also find support for the signalling and agency cost hypotheses for cash distributions. The fact that 41% of the option programmes in our sample are dividend protected allows us to test more directly the ,substitution/managerial wealth' hypothesis for the choice of distribution method. When options are dividend protected, the relationship between dividend distributions and the scope of the options programme turns to a significantly positive one instead of the negative one documented in US data. [source] Accession's Democracy Dividend: The Impact of the EU Enlargement upon Democracy in the New Member States of Central and Eastern EuropeEUROPEAN LAW JOURNAL, Issue 4 2004Wojciech Sadurski The purpose of this article is to examine this claim, that accession will provide a ,democracy dividend' in this fashion. To this end, the article begins by examining the political conditionality of the accession process, and the extent to which the process of democratisation can be understood as a result of ,external' pressures. It also discusses the extent to which the effectiveness of political conditionality is likely to survive after the accession takes place. The article then moves on to consider the effects of accession upon democracy in the states of the region by looking in detail at three areas that have been particularly important: the role of national parliaments, the new constitutional courts, and the tendency towards decentralisation and regionalism. The article concludes by noting that, although not all of the developments discussed are necessarily good for democracy in the region, the real dividend coming from the accession process lies in the fact that, on a macro-level, membership in the EU will make the democratic transition in Central and Eastern Europe practically irreversible. [source] Anticipating Tax Changes: Evidence from the Finnish Corporate Income Tax Reform of 2005,FISCAL STUDIES, Issue 2 2008Seppo Kari H25; H32 Abstract Using register-based panel data covering all Finnish firms from 1999 to 2004, we examine how corporations anticipated the 2005 dividend tax increase via changes in their dividend and investment policies. The Finnish capital and corporate income tax reform of 2005 creates a useful opportunity to measure this behaviour, since it involves exogenous variation in the tax treatment of different types of firms. The estimation results reveal that those firms that anticipated a dividend tax hike increased their dividend payouts in a statistically significant way. This increase was not accompanied by a reduction in investment activities, but rather was associated with increased indebtedness in non-listed firms. The results also suggest that the timing of dividend distributions probably offsets much of the potential for increased dividend tax revenue following the reform. [source] Alternative event study methodology for detecting dividend signals in the context of joint dividend and earnings announcementsACCOUNTING & FINANCE, Issue 2 2009Warwick Anderson C51; D46; G14; N27 Abstract Friction models are used to examine the market reaction to the simultaneous disclosure of earnings and dividends in a thin-trading environment. Friction modelling, a procedure using maximum likelihood estimation, can be used to replace both the market model and restricted least-squares regression in event studies where there are two quantifiable variables and a number of possible interaction effects associated with the news that constitutes the study's event. The results indicate that the dividend signal can be separated from the earnings signal. [source] Dividend preference of tradable-share and non-tradable-share holders in Mainland ChinaACCOUNTING & FINANCE, Issue 2 2009Louis T. W. Cheng Stock dividend; Cash dividend; Non-tradable share; Dividend signal Abstract Comprehensive data on corporate announcements of Chinese firms allows us to examine the preference for, and determinants of, cash and stock dividends. The results indicate that Chinese public investors prefer stock dividends over cash dividends, which are preferred by large state and legal person shareholders generally. Stock dividends, which do not require an explicit cash outflow from a firm, are found to be positively related to higher earnings, supporting the signalling hypothesis of dividend policy. In an imperfect market, these results have some implications for government regulation of financial markets. [source] The post,announcement performance of dividend,changing companies: The dividend,signalling hypothesis revisitedACCOUNTING & FINANCE, Issue 2 2002Abeyratna Gunasekarage This study revisits the dividend,signalling hypothesis by examining the post,announcement performance of U.K. companies which disclose dividend and earnings news to the capital market on the same day. For this purpose, we first analyse market,adjusted excess returns for three periods around the announcement and then examine the financial performance in the year of the announcement and in the subsequent five,year period. The near announcement excess returns and the announcement,year financial profiles provide strong evidence in support of the dividend,signalling hypothesis. However, in contrast to the predictions of the hypothesis, the longer,term results suggest that the companies which announce a reduction in both dividends and earnings (bad news companies) outperform their dividend,increasing counterparts. [source] Bubbles and fads in the stock market: another look at the experience of the USINTERNATIONAL JOURNAL OF FINANCE & ECONOMICS, Issue 3 2006Piergiorgio Alessandri Abstract This paper considers a standard present-value equity price formula where the discount factor is driven by the real return on short-term public debt. We discuss a state-space formulation by which prices can be decomposed into fundamental and non-fundamental components. The model is estimated on annual US data. The stochastic discount factor explains part of the volatility in equity values, but it is not sufficient per se to exclude the occurrence of near-exponential bubbles in the price-dividend ratio. These disappear if the dividend is replaced by a broader measure of the income flow generated by the firms. Copyright © 2006 John Wiley & Sons, Ltd. [source] Effect of Taxation on Equal Access Share Buybacks in Australia,INTERNATIONAL REVIEW OF FINANCE, Issue 3-4 2005CHRISTINE BROWN ABSTRACT In Australia, equal access share buybacks can be structured so that a portion of the buyback price is designated as a fully franked dividend. The tax benefits derived from this structure imply that off-market buybacks are sometimes offered to shareholders at a discount to the current market price. This is in contrast to the United States, which operates under a classical taxation system, and where off-market buybacks are generally executed at a premium to the market price. The situation in Australia provides a unique opportunity to add to our understanding of taxation explanations for how and why companies buy back their shares. We find that the size of the discount of the offer price to the current share price is significantly related to the proportion of the buyback price designated a franked dividend. Analysis of the after-tax benefits to shareholders leads us to conclude that the structure of many equal access buybacks in Australia is advantageous to superannuation funds holding the stock. [source] FINANCIAL STRATEGY FOR MIDDLE MARKET COMPANIES: a ROUNDTABLE DISCUSSIONJOURNAL OF APPLIED CORPORATE FINANCE, Issue 4 2000Article first published online: 5 APR 200 Dennis Soter begins with the provocative observation that "U.S. companies, private as well as public, are systematically underleveraged," and goes on to suggest that debt-financed stock repurchases may help address the current valuation problems faced by many middle market companies (and by many larger firms in basic industries as well). Soter makes his case by presenting two case histories. In the first, Equifax, the Atlanta-based provider of credit information services, combined a leveraged Dutch auction stock repurchase with a multi-year series of open market repurchase programs and an EVA incentive plan to produce large increases in operating efficiency and shareholder value. In the second, FPL Group (the parent of Florida Power and Light) became the first profitable utility to cut its dividend, substituting a policy of ongoing stock repurchase for its 33% reduction in dividend payments. Following Soter, John Brehm, the CFO of IPALCO Enterprises (the parent of Indianapolis Power and Light), explains the rationale for his company's decision to become the first utility to do a leveraged recap (while also cutting its dividend by a third). As in the case of Equifax, IPALCO's dramatic change in capital structure (also combined with an EVA incentive plan) was associated with major operating improvements and a positive stock market response. But, of course, high leverage is not right for all companies. And, to reinforce that point, James Perry, CEO of Argosy Gaming, recounts his harrowing experience of having to raise new equity shortly after taking charge of his overleveraged company. By arranging an infusion of convertible preferred, Argosy was able not only to stave off bankruptcy, but to fund major new investment and engineer a remarkable turnaround of its operations. Finally, William Dutmers, Chairman of Knape & Vogt, a small midwestern manufacturing company, discusses the role of debt-financed stock repurchases and an EVA management approach in his company's recent operating improvements. [source] The Effect of Exercise Date Uncertainty on Employee Stock Option ValueJOURNAL OF BUSINESS FINANCE & ACCOUNTING, Issue 5-6 2003Brian A. Maris The IASC recently recommended that employee compensation in the form of stock options be measured at the ,fair value' based on an option pricing model and the value should be recognized in financial statements. This follows adoption of SFAS No. 123 in the United States, which requires firms to estimate the value of employee stock options using either a Black-Scholes or binomial model. Most US firms used the B-S model for their 1996 financial statements. This study assumes that option life follows a Gamma distribution, allowing the variance of option life to be separate from its expected life. The results indicate the adjusted Black-Scholes model could overvalue employee stock options on the grant date by as much as 72 percent for nondividend paying firms and by as much as 84 percent for dividend paying firms. The results further demonstrate the sensitivity of ESO values to the volatility of the expected option life, a parameter that the B-S model or a Poisson process cannot accommodate. The variability of option life has an especially big impact on ESO value for firms whose ESOs have a relatively short life (5 years, for example) and high employee turnover. For such firms, the results indicate a binomial option pricing model is more appropriate for estimating ESO value than the B-S type model. [source] | |||||||||||||||||||||||||||||||||||||