Right on Schedule: CEO Option Grants and Opportunism

Robert M. Daines, Grant R. McQueen and Robert J. Schonlau
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Robert M. Daines: Stanford University
Grant R. McQueen: Brigham Young University
Robert J. Schonlau: Brigham Young University

Research Papers from Stanford University, Graduate School of Business

Abstract: In the wake of the backdating scandal, many firms began awarding options at scheduled times each year. Scheduling option grants eliminates backdating, but creates other agency problems. CEOs that know the dates of upcoming scheduled option grants have an incentive to temporarily depress stock prices before the grant dates to obtain options with lower strike prices. We provide evidence that in recent years some CEOs manipulate stock prices to increase option compensation. We document negative abnormal returns before scheduled option grants and positive abnormal returns after the grants. These returns are explained by measures of a CEO's incentive and ability to influence stock price. We document several mechanisms CEOs use to lower the strike price, including changing the substance and timing of the firm's disclosures.

JEL-codes: D82 G30 J33 K22 M41 M52 (search for similar items in EconPapers)
Date: 2015-04
New Economics Papers: this item is included in nep-bec, nep-cfn and nep-hrm
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