EMPLOYEE STOCK OPTIONS IN JAPAN: DETERMINANTS OF THEIR ISSUANCE, THEIR POTENTIAL IMPACT ON CORPORATE PROFITS, AND THEIR ASSOCIATION WITH STOCK PRICES

This paper analyzes the current state of non-executive employee stock option (ESO) issuance in Japan. First, I find that the main determinant of ESO issuance for individual firms is the extent of their corporate flexibility, although other hypotheses may be applicable depending on the industrial sector; second, the impact on the macro-economy is still quite small at the aggregate level. However, taking account of the fair cost of issuing ESOs could have a substantial effect on the profits of individual firms. Furthermore, I find that issuing ESOs tends to have a somewhat negative effect on stock prices.