Executive Stock Option Exercise and Seasoned Equity Offerings |
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Authors: | Brandon N. Cline Xudong Fu |
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Affiliation: | 1. Brandon N. Cline is an Assistant Professor of Finance in the School of Accounting and Finance at Clemson University, Clemson, SC 29634-1303.;2. Xudong Fu is an Assistant Professor of Finance in the Department of Economics & Finance at Southern Illinois University Edwardsville, Edwardsville, IL 62026. |
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Abstract: | We examine executive stock option exercises around a sample of 1,268 seasoned equity offerings (SEOs) from 1996 to 2004 focusing on a subset of exercises we identify as potentially informed. Consistent with the theory that firms issue equity when stock is overvalued, we document a surge in informed exercise in the months surrounding the SEO. From six months prior to the announcement date to six months after issuance, an average 1.76% of the total market capitalization for issuing firms is exercised and sold. Interestingly, we find a positive association between informed option exercises and long-run performance. Overall, our collective evidence indicates that insiders are not particularly good at timing exercises around SEOs. |
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