Academic journal article Journal of Economics & Management

Asset Pricing Anomalies on Polish Stock Market According to Employee Stock Options 1

Academic journal article Journal of Economics & Management

Asset Pricing Anomalies on Polish Stock Market According to Employee Stock Options 1

Article excerpt

(ProQuest: ... denotes formulae omitted.)

Introduction

Employee stock options (ESOs) are becoming more and more popular among Polish companies since their first introduction in the late 90s. Deloitte [2011] and PwC [2012] reported that nearly 45% of companies had such programs implemented in 2012 which is expected to grow since the average in Western European companies is close to 100%. This is the main reason why ESOs impact on the stock price should be analysed from both the investors' and companies perspective. For the company and shareholders it is extremely important to calculate the real cost of such instruments and financial benefits it should bring [Damodaran 2007; Urbanek 2006]. While for the investors, it is significant how the ESOs could possibly influence the stock price in the future.

According to the papers on ESOs [Lukowski 2010, 2012, 2014] influence on the company and its stock price, we can distinguish two main situations to separate the analysis. First, it is important either the ESO is implemented or it is being exercised. The reason for this is a result of investors' expectations. When the option is granted to the managers and employees, the market is not able to expect it. While the time frame of the options being exercised is given by the company, so that the market may expect certain outcomes of the program.

The second condition that should be taken into account is the construction of the ESO. While there are several market and non-market conditions, the options differ from each other in many ways. It appears, according to the Lukowski's papers [2012, 2014], that because of the differences, the outcome of each ESO can vary significantly. That is why all of the ESOs in the presented research would be divided into groups starting from the very simple options that do not stand up to theoretical standards and are only another mean of the employees remuneration to those that have a positive influence on the company and employees.

Asset pricing anomalies presented in this paper are about to show the differences between ESOs resulting in the stock price changes. The data consists of companies from different sectors that have granted the options to its employees. The research hypothesis of the article is that a different set of market and nonmarket conditions results in various side effects to the stock price.

1. Employee stock options implemented in Poland

Polish companies are becoming more and more interested in implementing ESOs. It is the result of the motivational character of such instruments as well as the profits it brings to the company itself and shareholders. There are however some issues of granted instruments. One of them is that most of the options are quite simple and they do not consist of many market and non-market conditions. The other thing is that the strike price very often is set at the low level, much lower than the actual stock price. Another problem is related to the group of employees that the options are being granted to. In polish companies only a few ESOs concern wide range of employees or customers. Most of them are granted to the top-level managers and are only another kind of remuneration, which leads to the lack of motivational effect.

That is why ESOs cannot be analysed as one group but should be divided according to the set of conditions it is built on. As was stated before, we consider the implementation and exercise of the options as different groups. Those two groups are later divided according to the clustering method that should allow us to distinguish at least three groups of programs.

The research is based on polish companies mainly from financial and IT sector. That is because those companies are most interested in such instruments. Another thing is that limiting research to only a few sectors allows us to measure the effects based on the same conditions that companies operate in. We select 14 companies that granted the options between 1997 and 2011. …

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