This managerial paper, Valuing employee stock options (ESO) and restricted stock in the presence of market imperfections, is authored by Simon Benninga and Menachem Abudy. Simon is a professor of finance at the University of Tel Aviv and a visiting professor at the Wharton School at the University of Pennsylvania. He has an impressive research background and comes with a practical sense of business issues, notably financial modelling. Menachem has a PhD from University of Tel Aviv and teaches financial modelling at Bar Ilan University.
Their work brings an important contribution to the subject of ESO valuation by utilizing an actual database of employee stock options. Their model considers the behavior of ESO holders. Their approach provides value estimates that are 50% less compared to more traditional ways of valuing ESOs.
This paper is the first of a series that will be sponsored by KPMG’s Global Valuation Institute. As practitioners we trust that you will find these of interest.