Employee Stock Options and Investment

Research output: Contribution to journalArticlepeer-review

36 Scopus citations


Exercises of employee stock options generate substantial cash inflows to the firm. These cash inflows substitute for costly external finance in those states of the world in which the demand for investment is high. Using the fact that the proceeds from option exercises exhibit a distinct nonlinearity around the point where options fall out of the money, we estimate that firms increase investment by $0.34 for each dollar received from the exercise of stock options. Firms that face higher external financing costs allocate more of the proceeds from option exercises to investment.

Original languageEnglish (US)
Pages (from-to)981-1009
Number of pages29
JournalJournal of Finance
Issue number3
StatePublished - Jun 2011

ASJC Scopus subject areas

  • Accounting
  • Finance
  • Economics and Econometrics


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