What question did this study set out to answer?

The study aims to assess the valuation implications of using expected terms for employee stock options instead of full contract durations.

Estimating the "Fair Value" of Employee Stock Options with Expected Early Exercise.

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Evaluates implications of using expected term for valuing employee stock options, suggesting improved accuracy in estimates.

The study aims to assess the valuation implications of using expected terms for employee stock options instead of full contract durations.
Evaluated theoretical and empirical evidence regarding early exercise implications in ESOs.
Proposed an adjustment to standard valuation models for more accurate ESO fair value estimation.
Found that using expected terms likely overstates ESO fair value for the firm.
Proposed adjustment is less likely to result in overstatement while accounting for essential valuation factors.

Hemmer et al. (1994) studied this question.

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