Information asymmetry, contract design and process of negotiation: The stock options awarding case

Stock option plans are used to increase managerial incentives, and business practices usually set the exercise price equal to the stock market price. The purpose of this paper is to underline the importance of a process of negotiation leading to a possibleequilibrium contract satisfying both managers and shareholders. The two key variables of the model are the percentage of equity capital offered by the shareholders to the managers and the exercise price of the options that may be at a discount. We explicitly introduce risk aversion and information asymmetries in the form of (i) an economic uncertainty in the gain of cash flow, (ii) possibly biased information between the two parties and (iii) a noise in the valuation price of the stock in the market. The existence of a process of negotiation between shareholders and managers leading to a possible disclosure of private information is highlighted. As a conclusion, we show that “efficient” stock option plans should be granted in a context of trade-off between the percentage of capital awarded to managers and the discount in stock price

Takeover bids, unconditional offer price and investors protection

In this paper, we develop a contingent claim analysis on shareholders\u27 right to sell unconditionally their shares at the acquisition bid price during a takeover bid procedure. Compared with a situation without any guarantee, this regulation brings about wealth transfer towards outside shareholders. Why, in an apparently irrational way, do outside shareholders, who may benefit from a price guarantee, not systematically sell their shares? That question emphasizes the outside shareholders\u27 behavior. Using a real option valuation model to evaluate the price guarantee opportunity, we show that an equal treatment rule between controlling and outside shareholders may lead outside shareholders to sell their shares

Actionnariat salarié : application du contrat optimal entre salariés et actionnaires

The new French regulation on employee stock ownership plans gives a strong incentive to the awarding of stock to employees using a tax subsidy. The purpose of the article is to analyze conditions of a joint optimal contract between employees and shareholders. The setting of the optimal contract is based on the existence of an effort made by stimulated employees to increase the economic cash-flow of the firm once they are awarded stocks though an ownership plan. Two variables are outlined : the percentage of new stocks awarded to the employees and the discount in the issue price of theses stocks compared to the market price. We show that a process of negotiation is necessary between the employees and the managers acting for the shareholders. Two different situations are successively analyzed. In a risk neutral framework, the conclusion of an optimal joint incentive contract which creates wealth for both parties is not evidenced. Then, we have to take in account different sources of information asymmetries. Theses elements are necessary to converge to an optimal equilibrium in a more realistic framework including risk aversion. A process of negotiation leads to the partial disclosure of private information from one party to the other. The meaning of this equilibrium is not only based on the economic sharing of the new wealth but also on a process of mutual exchange of trustable and true economic information on both the effort possibilities and the profitability of the investment projects in the firm

Information asymmetry, contract design and process of negotiation: The stock options awarding case

Stock option plans are used to increase managerial incentives, and business practices usually set the exercise price equal to the stock market price. The purpose of this paper is to underline the importance of a process of negotiation leading to a possible equilibrium contract satisfying both managers and shareholders. The two key variables of the model are the percentage of equity capital offered by the shareholders to the managers and the exercise price of the options that may be at a discount. We explicitly introduce risk aversion and information asymmetries in the form of (i) an economic uncertainty in the gain of cash flow, (ii) possibly biased information between the two parties and (iii) a noise in the valuation price of the stock in the market. The existence of a process of negotiation between shareholders and managers leading to a possible disclosure of private information is highlighted. As a conclusion, we show that "efficient" stock option plans should be granted in a context of trade-off between the percentage of capital awarded to managers and the discount in stock price.

La tendance a l'integration internationale des marches obligataires

SIGLEAvailable at INIST (FR), Document Supply Service, under shelf-number : DO 182 / INIST-CNRS - Institut de l'Information Scientifique et TechniqueFRFranc

Analyse technique et efficience des marches de change Un test empirique

SIGLEAvailable at INIST (FR), Document Supply Service, under shelf-number : DO 185 / INIST-CNRS - Institut de l'Information Scientifique et TechniqueFRFranc

L'EURO : mise en place et consequences de la monnaie unique

Available from INIST (FR), Document Supply Service, under shelf-number : DO 4801 / INIST-CNRS - Institut de l'Information Scientifique et TechniqueSIGLEFRFranc

Analyse de la relation entre primes de terme et prime de change dans un cadre d'equilibre international

SIGLEAvailable at INIST (FR), Document Supply Service, under shelf-number : DO 1396 / INIST-CNRS - Institut de l'Information Scientifique et TechniqueFRFranc

L'integration partielle des marches internationaux : modelisation et test empirique

Available at INIST (FR), Document Supply Service, under shelf-number : DO 1397 / INIST-CNRS - Institut de l'Information Scientifique et TechniqueSIGLEFRFranc

L'EURO : point d'etape

Available from INIST (FR), Document Supply Service, under shelf-number : DO 5435 / INIST-CNRS - Institut de l'Information Scientifique et TechniqueSIGLEFRFranc