We separate equity issuance proceeds into two parts: option proceeds generated by employee stock option exercises and non-option proceeds engendered by all other forms of equity issues. We document that over the period 1998-2013, the aggregate amount of option proceeds exceeds that of non-option proceeds for a large sample of U.S. firms. In particular, firms allocate option proceeds predominantly to cash holdings, followed by investment and equity repurchase, while non-option proceeds are mainly allocated to investment and cash holdings. Further analysis shows that financial constraints affect the allocation of equity issuance proceeds by shifting the use of option proceeds away from stock repurchases to investment and cash savings, while directing non-option proceeds away from investment to cash savings.
Employee Stock Option, Equity issuance, Cash Flow Allocation, Cash Holdings
CHANG, Xin; CHEN, Yangyang; SHIH, Chia Mei; and WANG, Rong.
The Allocation of Employee Stock Option Proceeds. (2014). Research Collection Lee Kong Chian School Of Business.
Available at: http://ink.library.smu.edu.sg/lkcsb_research/4556