Summary
We examine the impact of the cultural norm of uncertainty avoidance on employee stock option (ESO) exercise behavior using proprietary data from a multinational firm. We find that employees from countries with higher levels of uncertainty avoidance exercise their stock options earlier. These findings lend support to a maintained assumption in the ESO literature that employee attitudes toward uncertainty influence stock option exercise behaviors. Our findings further help to explain prior findings of cross-cultural differences in firms’ compensation practices by indicating that employee responses to option-based pay and firms’ consequent financial reporting costs vary as functions of employee uncertainty avoidance.