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Information, Insider Trading, Executive Reload Stock Options, Incentives, and Regulation

David Colwell (), David Feldman (), Wei Hu () and Monique Pontier ()
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David Colwell: UNSW Business School - UNSW - University of New South Wales [Sydney]
David Feldman: UNSW Business School - UNSW - University of New South Wales [Sydney]
Wei Hu: Curtin University
Monique Pontier: IMT - Institut de Mathématiques de Toulouse UMR5219 - UT Capitole - Université Toulouse Capitole - UT - Université de Toulouse - INSA Toulouse - Institut National des Sciences Appliquées - Toulouse - INSA - Institut National des Sciences Appliquées - UT - Université de Toulouse - UT2J - Université Toulouse - Jean Jaurès - UT - Université de Toulouse - UT3 - Université Toulouse III - Paul Sabatier - UT - Université de Toulouse - CNRS - Centre National de la Recherche Scientifique

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Abstract: We introduce a theoretical model of executives with insider information (insider-executives) granted incentivizing executive stock options (ESO). We show that while insider-executives optimize their wealth, using their insider information nullies ESO incentives, misaligning their and shareholders' interests. We oer realigning methods: granting insider-executives reload stock options (RSO) and imposing blackout trading periods (blackouts). Eective blackouts keep insider-executives incentivized without being overly restrictive, i.e., without reducing their welfare below that of outsiders. We introduce RSO pricing for insider-executives and oer policy implications: reestablishing the currently out-of-favor RSO, and allowing rms, not regulators, to set blackout periods on securities they issue.

Keywords: Executive Stock Options; Insider Information; Constrained Portfolio Optimization; Non-Hedgeable; Non-Transferable; Reload; Enlarged Filtration (search for similar items in EconPapers)
Date: 2023-06-05
New Economics Papers: this item is included in nep-mac and nep-mst
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