An International Meeting of the American Accounting Association American Accounting Association 2006 Annual Meeting August 6–9, 2006 Washington, D.C.

Peijing Kao
National Taiwan University

Taychang Wang
National Taiwan University

Chiawen Liu
Accounting Department of National Taiwan University

Abstract: This paper investigates a market-valuation-based hypothesis for employee stock grant. It examines how market valuation has affected the decision to grant employee stocks, the amount of stocks granted, and the value of stocks granted. It also examines the distribution of stocks among executives and rank-and-file employees and the influence that professional investors might have on employee stock grant decision. The empirical evidence shows that firms with high market valuation are more likely to adopt employee stock grants and grant more stocks to their employees. Furthermore, top executives tend to grant a larger portion of stocks to themselves relative to rank-and-file employees when they perceive the current market valuation is high. Under the monitoring of professional investors, the possibility of adopting employee stock grants is diminished. This paper also support that employee stock grants can be used as a method to sell overvalued equity.

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