Employee stock options (ESOs) are a popular way of remunerating employees. We analyse factors at the firm and option level affecting the employee's decision to exercise ESOs before they mature. Exercises over the period 1998-2004 are analysed and the key factor influencing early exercise is found to be dividends. Exercises frequently occur well before maturity, but in most cases little time value is sacrificed. Our findings have implications for the 'fair' valuation of ESOs in companies' financial statements, as required by the relevant Australian accounting standard, AASB 2.
Boyd, T. S., Brown, P., & Szimayer, A. (2007). What determines early exercise of employee stock options in Australia? Accounting and Finance, 47(2), 165-185. https://doi.org/10.1111/j.1467-629x.2007.00211.x