Incentive and Dilution Effects of Employee Stock Bonuses and Stock Options: Evidence from Taiwan

Employee stock bonuses (ESBs) and employee stock options (ESOs) are the means for high-technology companies in Taiwan to reward their employees. This research connects the Ohlson (1995 Ohlson, JA. 1995. Earnings, book values, and dividends in equity valuation. Contemporary Accounting Research, 11: 661–687. [Crossref] , [Google Scholar]) model and Linear Structural Relations (LISREL) model to investigate these effects of ESBs and ESOs, respectively, for a sample of high-technology companies in Taiwan. I generate two empirical generalizations. (1) The incentive effects of ESBs are significantly associated with performance, thus enhancing firm value; in addition, the incentive effects of ESBs are greater than the dilution effects. (2) The incentive effects of ESOs are also significantly associated with performance, whereas the dilution effects of ESOs are insignificant. Although evidence supports the incentive effects of providing ESOs and ESBs, it is debatable whether ESOs and ESBs dilute shareholders’ equity.