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Journal of International Business Studies

, Volume 50, Issue 5, pp 740–757 | Cite as

Uncertainty avoidance and the timing of employee stock option exercise

  • Francesco BovaEmail author
  • Marshall Vance
Article

Abstract

We examine the impact of the cultural norm of uncertainty avoidance on employee stock option (ESO) exercise behavior using proprietary data from a multinational firm. We find that employees from countries with higher levels of uncertainty avoidance exercise their stock options earlier. These findings lend support to a maintained assumption in the ESO literature that employee attitudes toward uncertainty influence stock option exercise behaviors. Our findings further help to explain prior findings of cross-cultural differences in firms’ compensation practices by indicating that employee responses to option-based pay and firms’ consequent financial reporting costs vary as functions of employee uncertainty avoidance.

Keywords

uncertainty avoidance employee stock options option exercise compensation multinationals subjective valuation FAS 123R 

Resume

Nous étudions l’impact de la norme culturelle d’évitement de l’incertitude sur le comportement lié à l’option d’achat d’actions des employés (OAAE) en utilisant des données relatives à la propriété d’une entreprise multinationale. Nous constatons que les employés des pays ayant des niveaux plus élevés d’évitement de l’incertitude exercent leurs options d’achat d’actions plus tôt. Ces résultats soutiennent une hypothèse entretenue dans la littérature relative à l’OAAE sur le fait que les attitudes des employés envers l’incertitude influencent les comportements liés aux options d’achat d’actions. Nos résultats aident également à expliquer les résultats antérieurs sur les différences interculturelles dans les pratiques de rémunération des entreprises en indiquant que les réponses des employés à la rémunération fondée sur les options et les coûts d’établissement des rapports financiers des entreprises varient en fonction de l’évitement de l’incertitude des employés.

Resumen

Examinamos el impacto de la norma cultural de evitación de la incertidumbre en el comportamiento de las opciones sobre acciones para los empleados (ESO) utilizando datos de propiedad de una firma multinacional. Encontramos que los empleados de países con mayores niveles de evitación de la incertidumbre ejercen sus opciones sobre acciones antes. Estos hallazgos apoyan una suposición sostenida en la literatura sobre opciones sobre acciones para empleados que las actitudes de los empleados hacia la incertidumbre influyen en los comportamientos de ejercicio de opciones sobre acciones. Nuestros hallazgos ayudan a explicar los hallazgos previos de las diferencias interculturales en las prácticas de compensación de las empresas al indicar que las respuestas de los empleados al pago basado en opciones y los costos consecuentes de presentación de informes financieros de las empresas varían como funciones de la evitación de incertidumbre del empleado.

Resumo

Examinamos o impacto da norma cultural de aversão a incertezas no comportamento de exercício de opções de ações de funcionários (ESO) usando dados proprietários de uma empresa multinacional. Descobrimos que funcionários de países com níveis mais altos de aversão a incerteza exercem suas opções de ações mais cedo. Essas descobertas dão suporte a uma suposição estabelecida na literatura de ESO de que as atitudes dos funcionários em relação à incerteza influenciam o comportamento no exercício das opções de ações. Nossas descobertas também ajudam a explicar descobertas prévias de diferenças culturais nas práticas de compensação das empresas, indicando que a resposta de empregados ao pagamento baseado em opções e os consequentes custos de relatórios financeiros variam como funções da aversão a incerteza do empregado.

摘要

我们用来自跨国公司的专有数据研究不确定性规避的文化规范对员工股票期权(ESO)行使行为的影响。我们发现具有较高不确定性规避水平的国家的员工提前行使其股票期权。这些发现支持了ESO文献中一个保持不变的假设, 即员工对不确定性的态度影响股票期权的行使行为。我们的研究结果进一步帮助解释了先前关于企业薪酬实践中的跨文化差异的研究结果, 指出员工对基于期权的薪酬和企业后续财务报告成本的反应随着员工的不确定性规避的变化而变化。

Notes

Acknowledgements

We appreciate valuable comments from the Editor and three referees, and from Chris Armstrong, Anne Farrell, William Gerken, Cristi Gleason, Kevin Murphy, Xiaoxia Peng, and participants at the 2016 AAA Management Accounting Section Midyear Meeting, 2016 AAA International Accounting Section Midyear Meeting, 2016 Temple Accounting Conference, 2016 BYU Accounting Symposium, New York University, the University of Toronto, and the University of British Columbia. Bova is grateful for funding and data from the Accurate Equity Fellowship. The views expressed represent the authors’ views alone. Previous working versions of this article were titled “National Culture and the Timing of Employee Stock Option Exercise.”

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Copyright information

© Academy of International Business 2018

Authors and Affiliations

  1. 1.Rotman School of ManagementUniversity of TorontoTorontoCanada
  2. 2.Marshall School of BusinessUniversity of Southern CaliforniaLos AngelesUSA

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