Managerial Risk-Taking Incentives and Executive Stock Option Repricing: A Study of US Casino Executives

Daniel A. Rogers

Financial Management, 2005, vol. 34, issue 1

Abstract: I examine the relation between managerial incentives from holdings of company stock and options and stock option repricing. Because options provide incentives to increase both risk and stock price, firms must realize that as options go underwater, executives might face incentives to invest in risky, negative NPV projects. Repricing may alleviate such incentives. I examine repricing activity by firms in the US gaming industry and find that risk-taking incentives from options are positively related to the incidence of executive option repricing. The results support the hypothesis that repricing assists firms in alleviating excessive risktaking incentives of senior management.

Date: 2005
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