Does Corporate Governance Curb Managers’ Opportunistic Behavior of Exploiting Inside Information for Early Exercise of Executive Stock Options?

Chin-Chen Chien (), Cheng Few Lee and She Chih Chiu
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Chin-Chen Chien: Department of Accountancy, National Cheng Kung University, Tainan City 701, Taiwan
She Chih Chiu: Department of Accountancy, National Cheng Kung University, Tainan City 701, Taiwan

Review of Pacific Basin Financial Markets and Policies (RPBFMP), 2016, vol. 19, issue 01, 1-22

Abstract: This paper aims to investigate the role of corporate dividend policy and corporate governance in managerial timing decisions with regard to large exercise of executive stock options (ESOs). The findings indicate that the motivations behind managers’ decisions to exercise abnormally large ESOs vary depending on the strength of the related corporate governance mechanisms. Managers of weakly governed companies exploit abnormal earnings management when timing large exercises of ESOs. In contrast, managers of well-governed companies behave rationally in timing large exercises of ESOs, carrying them out in years in which their companies significantly raise dividend payouts.

Keywords: Executive compensation; stock-option exercises; earnings management; corporate governance (search for similar items in EconPapers)
Date: 2016
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Citations: View citations in EconPapers (4)

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DOI: 10.1142/S0219091516500065

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